UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2010 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period of _________ to _________

For the quarterly period ended September 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period of _________ to _________

Commission File Number 000-49792

Jacksonville Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Federal	33-1002258
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification Number)

1211 West Morton Avenue
Jacksonville, Illinois	62650
(Address of principal executive office)	(Zip Code)

Registrant’s telephone number, including area code: (217) 245-4111

Indicate by check whether issuer (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes

o No

Indicate by check mark whether the registrant has submitted ~~electronic~~electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period the registrant was required to submit and post such filings).

xo Yes o No

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the ~~definition~~definitions of “large accelerated filer,” ~~and large~~ “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	o Large Accelerated Filer	o Accelerated Filer
	o Non-Accelerated Filer	x Smaller Reporting Company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes

x No

As of ~~October 31~~May 14, ~~2009~~2010, there were 1,920,817 shares (*) of the Registrant’s common stock issued and outstanding.

(*) As of ~~October~~May 3114, ~~2009~~2010, 1,038,738 shares were owned by Jacksonville Bancorp, M.H.C., the Company’s mutual holding company parent.

JACKSONVILLE BANCORP, INC.

FORM 10-Q

~~September 30~~March 31, ~~2009~~2010

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statement of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4-5
	Notes to the Condensed Consolidated Financial Statements	6-1718
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819-3230
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3331-32
Item 4.T	Controls and Procedures	3433
PART II	OTHER INFORMATION	3534
Item 1.	Legal Proceedings	36
Item 2.	Changes in Securities and Stock Purchases	36
Item 1.A.	Risk Factors
Item 3.	Defaults Upon Senior Securities	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 3.	Defaults Upon Senior Securities
Item 5.	Other Information	36
Item 4.	Removed and Reserved
Item 6.	Exhibits	36
Item 5.	Other Information
	Signatures	37
Item 6.	Exhibits
	Signatures	35
EXHIBITS
	Section 302 Certifications
	Section 906 Certification

PART I – FINANCIAL INFORMATION

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
	March 31,			December 31,
ASSETS	2010			2009
	(Unaudited)
Cash and cash equivalents	$	14,792,417		$	15,696,474
Investment securities - available for sale		46,563,366			37,196,298
Mortgage-backed securities - available for sale		36,641,884			40,984,395
Federal Home Loan Bank stock		1,108,606			1,108,606
Other investment securities		146,836			149,902
Loans receivable - net of allowance for loan losses of $2,555,330 and $2,290,001 as of
March 31, 2010 and December 31, 2009		170,668,909			173,683,310
Loans held for sale - net		149,542			814,074
Premises and equipment - net		5,676,830			5,766,858
Cash surrender value of life insurance		4,145,470			4,094,663
Accrued interest receivable		2,071,770			1,988,394
Goodwill		2,726,567			2,726,567
Capitalized mortgage servicing rights, net of valuation allowance of $139,924 and $156,442
as of March 31, 2010 and December 31, 2009		848,475			850,313
Real estate owned		628,672			382,879
Deferred income taxes		764,427			724,139
Income taxes receivable		175,848			269,260
Other assets		2,322,146			2,410,340

Total Assets	$	289,431,765		$	288,846,472

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits	$	255,138,465		$	254,700,223
Other borrowings		3,280,319			3,789,453
Advance payments by borrowers for taxes and insurance		852,043			508,356
Accrued interest payable		671,079			734,903
Deferred compensation payable		2,864,456			2,826,227
Other liabilities		1,037,978			1,023,890
Total liabilities		263,844,340			263,583,052

Commitments and contingencies		-			-

Preferred stock, $0.01 par value - authorized 10,000,000 shares;
none issued and outstanding		-			-

Common stock, $0.01 par value - authorized 20,000,000 shares; issued
1,987,904 shares as of March 31, 2010 and December 31, 2009		19,879			19,879

Additional paid-in-capital		6,634,591			6,634,591

Retained earnings		18,832,207			18,399,506

Less: Treasury stock of 67,087 shares, at cost, as of March 31, 2010 and December 31, 2009		(486,381	)		(486,381	)

Accumulated other comprehensive income		587,129			695,825

Total stockholders' equity		25,587,425			25,263,420

Total Liabilities and Stockholders' Equity	$	289,431,765		$	288,846,472

See accompanying notes to the unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	September 30,			December 31,
ASSETS	2009			2008
	(Unaudited)
Cash and cash equivalents	$	7,316,015		$	7,145,288
Investment securities - available-for-sale		39,229,388			49,638,933
Mortgage-backed securities - available-for-sale		48,161,769			27,795,119
Federal Home Loan Bank stock		1,108,606			1,108,606
Other investment securities		212,645			240,321
Loans receivable - net of allowance for loan losses of $2,715,662 and $1,934,072 as of
September 30, 2009 and December 31, 2008		179,328,424			182,948,292
Loans held for sale, net		914,142			1,388,284
Premises and equipment - net		5,857,601			6,106,746
Cash surrender value of life insurance		4,051,257			3,907,339
Accrued interest receivable		3,024,111			2,344,502
Goodwill		2,726,567			2,726,567
Capitalized mortgage servicing rights, net of valuation allowance of $208,032 and $428,030
as of September 30, 2009 and December 31, 2008		799,314			545,494
Real estate owned		521,392			769,467
Income taxes receivable		563,282			-
Other assets		1,105,679			1,610,376
Total Assets	$	294,920,192		$	288,275,334
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	253,697,173		$	238,151,228
Borrowings		10,089,992			21,133,079
Advance payments by borrowers for taxes and insurance		300,363			445,077
Accrued interest payable		789,777			925,661
Deferred compensation plan		2,758,089			2,576,290
Income taxes payable		-			29,092
Other liabilities		1,660,907			755,467
Total liabilities		269,296,301			264,015,894
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value - authorized 10,000,000 shares;
none issued and outstanding		-			-
Common stock, $0.01 par value - authorized 20,000,000 shares; issued
1,987,904 shares as of September 30, 2009 and December 31, 2008		19,879			19,879
Additional paid-in capital		6,634,591			6,634,108
Retained earnings		18,035,138			17,268,043
Less: Treasury stock of 67,087 shares and 0 shares, at cost, as of September 30, 2009 and
and December 31, 2008, respectively		(486,381	)		-
Accumulated other comprehensive income		1,420,664			337,410
Total stockholders’ equity		25,623,891			24,259,440
Total Liabilities and Stockholders' Equity	$	294,920,192		$	288,275,334
See accompanying notes to the condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended				~~Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2009		2008		2009			2008
	2010		2009
	(Unaudited)				~~(Unaudited)~~
INTEREST INCOME:
Loans	$	2,~~904~~671,~~810~~261	$	2,~~974~~977,~~236~~876	$	~~8,785,949~~		$	~~8,994,925~~
Investment securities		~~356~~399,~~239~~634		~~533~~462,~~201~~045		~~1,201,070~~			~~1,568,827~~
Mortgage-backed securities		~~386~~160,~~763~~878		~~448~~329,~~410~~321		~~1,035,715~~			~~1,169,646~~
Other		12,~~632~~449		164,~~210~~375		~~10,096~~			~~228,042~~
Total interest income		3,~~649~~234,~~444~~222		3,~~972~~773,~~057~~617		~~11,032,830~~			~~11,961,440~~
INTEREST EXPENSE
INTEREST EXPENSE:
Deposits		1,~~291~~052,~~381~~574		1,~~706~~439,~~730~~296		~~4,129,030~~			~~5,651,822~~
Borrowings		22,841		150,193		97,996			448,737
Other borrowings		2,180		51,764
Total interest expense		1,~~314~~054,~~222~~754		1,~~856~~491,~~923~~060		~~4,227,026~~			~~6,100,559~~
NET INTEREST INCOME		2,~~335~~179,~~222~~468		2,~~115~~282,~~134~~557		~~6,805,804~~			~~5,860,881~~
PROVISION FOR LOAN LOSSES		~~250~~275,000		~~105~~350,000		~~2,150,000~~			~~165,000~~
NET INTEREST INCOME AFTER
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,904,468		1,932,557
PROVISION FOR LOAN LOSSES		2,085,222		2,010,134		4,655,804			5,695,881
NON-INTEREST INCOME:
OTHER INCOME:
Fiduciary activities		42,421		47,527
Trust income		32,090		48,246		121,563			144,993
Commission income		260,943		137,439
Commission income		169,826		268,434		490,658			852,442
Service charges on deposit accounts		231,219		149,097
Service charges on deposit accounts		275,273		218,934		615,897			600,449
Mortgage banking operations, net		48,503		281,941
Mortgage banking operations, net		107,440		59,420		648,079			150,206
Net realized gains on sales of available-for-sale securities		140,028		59,315
Gains on sales of securities		44,625		1,451		437,276			1,639
Loan servicing fees		92,608		85,986
Loan servicing fees		91,425		104,151		267,068			269,325
Other		135,408		144,276
Increase in cash surrender value		44,666		46,211		135,270			120,033
Total non-interest income		951,130		905,581
Other		106,478		98,117		308,754			303,105
NON-INTEREST EXPENSE:
Total other income		871,823		844,964		3,024,565			2,442,192
Salaries and employee benefits		1,389,110		1,351,640
OTHER EXPENSES:
Occupancy and equipment		260,035		271,806
Salaries and employee benefits		1,378,940		1,385,115		4,104,259			4,108,260
Data processing		98,805		73,488
Occupancy and equipment		264,467		297,311		802,626			850,894
Professional		37,065		42,085
Data processing		95,684		111,117		247,134			332,870
Marketing		28,144		30,808
Professional fees		55,490		47,169		158,875			137,166
Postage and office supplies		68,634		76,575
Postage and office supplies		72,327		74,750		216,367			223,278
Deposit insurance premium		103,030		106,301
FDIC insurance		116,770		11,054		457,046			32,450
Other		262,800		262,879
Reduction in valuation allowance on mortgage servicing asset		-		-		(91,269	)		-
Total non-interest expense		2,247,623		2,215,582
Other		287,028		280,184		810,852			822,213
INCOME BEFORE INCOME TAXES		607,975		622,556
Total other expenses		2,270,706		2,206,700		6,705,890			6,507,131
INCOME TAXES		109,118		121,306
INCOME BEFORE INCOME TAXES		686,339		648,398		974,479			1,630,942
NET INCOME	$	498,857	$	501,250
INCOME TAXES		149,123		149,601		8,837			344,996
NET INCOME PER COMMON SHARE - BASIC	$	0.26	$	0.26
NET INCOME	$	537,216	$	498,797	$	965,642		$	1,285,946
NET INCOME PER COMMON SHARE - DILUTED	$	0.26	$	0.26
NET INCOME PER COMMON SHARE, BASIC	$	0.28	$	0.25	$	0.50		$	0.65
See accompanying notes to the unaudited condensed consolidated financial statements.
NET INCOME PER COMMON SHARE, DILUTED	$	0.28	$	0.25	$	0.50		$	0.65
See accompanying notes to unaudited condensed consolidated financial statements

JACKSONVILLE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
											Accumulated
			Additional								Other			Total
	Common		Paid-in		Treasury			Retained			Comprehensive			Stockholders'			Comprehensive
(Unaudited)	Stock		Capital		Stock			Earnings			Income			Equity			Income
BALANCE, DECEMBER 31, 2008	$	19,879	$	6,634,108	$	-		$	17,268,043		$	337,410		$	24,259,440
BALANCE, DECEMBER 31, 2009	$	19,879	$	6,634,591	$	(486,381	)	$	18,399,506		$	695,825		$	25,263,420
Net Income		-		-		-			~~965~~498,~~642~~857			-			~~965~~498,~~642~~857		$	498,857
Other Comprehensive Income - change in
Other comprehensive income(loss) - change in
net unrealized gains on securities available
net unrealized gains on securities available-
for sale, net of tax benefit of $409,366		-		-		-			-			794,652			794,652
for-sale, net of taxes of $(103,604)		-		-		-			-			(201,114	)		(201,114	)		(201,114	)
Reclassification adjustment for gains
Less: reclassification adjustment for gains
included in net income, net of tax of $148,674		-		-		-			-			288,602			288,602
included in net income, net of tax of $47,610		-		-					-			92,418			92,418			92,418
Comprehensive Income														$	~~2,048,896~~-		$	390,161
Purchase of treasury stock		-		-		(486,381	)		-			-			(486,381	)
Dividends ($0.075 per share)		-		-		-			(66,156	)		-			(66,156	)
Compensation expense for stock options		-		483		-			-			-			483
BALANCE, MARCH 31, 2010	$	19,879	$	6,634,591	$	(486,381	)	$	18,832,207		$	587,129		$	25,587,425
Dividends on common stock ($0.225 per share)		-		-		-			(198,547	)		-			(198,547	)
See accompanying notes to unaudited condensed consolidated financial statements.
BALANCE, SEPTEMBER 30, 2009	$	19,879	$	6,634,591	$	(486,381	)	$	18,035,138		$	1,420,664		$	25,623,891
See accompanying notes to unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2009			2008
	2010			2009
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	~~965~~498,~~642~~857		$	1501,~~285,946~~250
Adjustments to reconcile net income to net cash provided by
Adjustments to reconcile net income to net cash provided
operating activities:
by operating activities:
Depreciation, amortization and accretion:
Premises and equipment		~~307~~92,~~298~~980			~~325~~102,~~317~~146
Amortization of investment premiums and discounts, net		~~570~~316,~~414~~339			5658,~~601~~135
Amortization of intangible assets		-			39,862
Net realized gains on sales of available-for-sale securities		(140,028	)		(59,315	)
Compensation expense related to stock options		~~483~~-			~~1,515~~240
Provision for loan losses		2275,~~150,~~000			~~165~~350,000
Mortgage banking operations, net		(~~648~~48,~~079~~503	)		(~~150~~281,~~206~~941	)
Gains on sales of real estate owned		(10,390	)		(12,795	)
Loss (gain) on sale of real estate owned		3,304			(10,390	)
Gains on sales of securities		(437,276	)		(1,639	)
Changes in income taxes payable		93,412			1,842
Reduction in valuation allowance on mortgage servicing asset		(91,269	)		-
Changes in assets and liabilities		(41,789	)		598,810
Changes in income taxes payable		(592,374	)		(48,338	)
Net cash provided by operations before loan sales		1,049,572			1,260,777
Changes in other assets and liabilities		63,012			(1,151,335	)
Origination of loans for sale to secondary market		(4,178,138	)		(32,569,702	)
Net cash provided by operations before loan sales		2,277,461			509,928
Proceeds from sales of loans to secondary market		4,893,011			32,592,843
Origination of loans for sale to secondary market		(57,468,221	)		(23,342,780	)
Net cash provided by operating activities		1,764,445			1,283,918
Proceeds from sales of loans to secondary market		58,427,891			24,131,889
Net cash provided by operating activities		3,237,131			1,299,037
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment and mortgage-backed securities		(7625,~~317~~500,~~310~~252	)		(6116,~~171~~269,~~234~~304	)
Maturity or call of investment securities available-for-sale		163,~~579~~500,~~916~~000			465,~~020~~580,~~492~~000
Proceeds from sale of investment and mortgage-backed securities		40,159,947			3,874,931
Sale of investment securities available-for-sale		12,555,212			8,276,567
Principal payments on mortgage-backed and investment securities		114,~~156~~082,~~171~~547			31,~~390~~659,~~580~~333
Proceeds from sale of other real estate owned		276,107			132,298
Proceeds from sale of real estate owned		94,386			276,107
(Increase) decrease in loans, net		1,463,702			(3,606,628	)
Net decrease in loans		2,395,918			1,967,375
Purchase of bank-owned life insurance		-			(549,635	)
Additions to premises and equipment		(2,952	)		(7,287	)
Proceeds from disposal of premises and equipment		-			32,795
Net cash provided by (used in) investing activities		(2,875,141	)		1,482,791
Gains on disposal of premises and equipment		-			(6,517	)
Additions to premises and equipment		(58,153	)		(271,736	)
Net cash used in investing activities		(6,739,620	)		(12,154,654	)
				(Continued)

JACKSONVILLE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2009			2008
	2010			2009
	(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	$	15,545,945		$	(7,330,609	)
Net increase in deposits	$	438,242		$	19,118,107
Net increase (decrease) in borrowings		(11,043,087	)		13,323,075
Net decrease in other borrowings		(509,134	)		(10,450,066	)
Decrease in advance payments by borrowers for taxes and insurance		(144,714	)		(91,153	)
Increase in advance payments by borrowers for taxes and insurance		343,687			256,564
Purchase of treasury stock		~~(486,381~~-	)		-(486,381	)
Exercise of stock options, including tax benefit		-			11,000
Dividends paid - common stock		(66,156	)		(66,231	)
Dividends paid - common stock		(198,547	)		(213,566	)
Net cash provided by financing activities		206,639			8,371,993
Net cash provided by financing activities		3,673,216			5,698,747
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS		(904,057	)		11,138,702
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		170,727			(5,156,870	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		15,696,474			7,145,288
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		7,145,288			12,175,464
CASH AND CASH EQUIVALENTS, END OF YEAR	$	14,792,417		$	18,283,990
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,316,015		$	7,018,594
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Cash paid during the year for:
Interest on deposits	$	41,~~243~~113,~~314~~398		$	51,~~888~~420,~~083~~633
Interest on borrowings		119,596			448,087
Interest on other borrowings		5,180			73,264
Income taxes paid		~~559,000~~-			~~380~~100,~~600~~000
NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in settlement of loans	$	~~194~~343,~~666~~483		$	~~144,739~~-
Loans to facilitate sales of real estate owned		~~188,500~~-			93188,~~625~~500
See accompanying notes to unaudited condensed consolidated financial statements

JACKSONVILLE BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENTS

1.	FINANCIAL STATEMENTS

	The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. collectively (the “Company”). All significant intercompany accounts and transactions have been eliminated.

	In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2010 and December 31, 2009 and the results of its operations for the three month periods ended March 31, 2010 and 2009. The results of operations for the three month period ended March 31, 2010 are not necessarily indicative of the results which may be expected for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2009 filed as an exhibit to the Company’s Form 10-K filed in March, 2010. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP) and to prevailing practices within the industry.

	Certain amounts included in the 2009 consolidated statements have been reclassified to conform to the 2010 presentation.

2.	NEW ACCOUNTING PRONOUNCEMENTS

	In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” which was codified into ASC Topic 860. Topic 860 seeks to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Topic 860 addresses (1) practices that have developed since the issuance of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This standard must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. This standard must be applied to transfers occurring on or after the effective date. We adopted ASC Topic 860 on January 1, 2010, and there was no impact to our financial statements.

	In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R) ,” which was codified into ASC Topic 810. Topic 810 seeks to improve financial reporting by enterprises involved with variable interest entities by addressing (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” as a result of the elimination of the qualifying special-purpose entity concept in SFAS No. 166, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This Statement shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. We adopted ASC Topic 810 on January 1, 2010, and there was no impact to our financial statements.

The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. collectively (the “Company”). All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of September 30, 2009 and December 31, 2008 and the results of its operations for the three and nine month periods ended September 30, 2009 and 2008. The results of operations for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results which may be expected for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2008 filed as an exhibit to the Company’s Form 10-K filed in March, 2009. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP) and to prevailing practices within the industry.

Certain amounts included in the 2008 consolidated statements have been reclassified to conform to the 2009 presentation.

2. NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Accounting Standards Codification (“ASC”) 805 which establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805 became effective for acquisitions in fiscal years beginning after December 15, 2008. The application of ASC 805 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB amended ASC 810, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” ASC 810 requires that a noncontrolling interest in a subsidiary be reported separately within equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in deconsolidation. A portion of ASC 810 became effective for fiscal years beginning after December 15, 2008. The application of ASC 810 did not have a material impact on the Company’s consolidated financial statements.

In March 2008, the FASB amended ASC 815, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. A portion of ASC 815 became effective for fiscal years beginning after November 15, 2008. The application of ASC 815 did not have a material impact on the Company’s consolidated financial statements.

In ~~April~~January ~~2009~~2010, the ~~FASB~~Financial ~~issued~~Standards anAccounting ~~accounting~~Board ~~standard~~issued ~~which~~Accounting ~~amended~~Standards ~~other-than-temporary~~Update ~~impairment~~ (“~~OTTI~~ASU”) ~~guidance~~No. in2010-06, ~~GAAP~~Improving ~~for~~Disclosures ~~debt~~About ~~securities~~Fair byValue ~~requiring~~Measurements, awhich ~~write-down~~added ~~when~~disclosure ~~fair~~requirements ~~value~~about istransfers ~~below~~in ~~amortized~~and ~~cost~~out inof ~~circumstances~~Levels ~~where: (~~1) anand ~~entity~~2, ~~has~~clarified ~~the~~existing ~~intent~~fair tovalue ~~sell~~disclosure arequirements ~~security;~~about ~~(2)~~the itappropriate islevel ~~more~~of ~~likely~~disaggregation, ~~than~~and ~~not~~clarified that ana ~~entity will~~description beof ~~required~~valuation totechniques ~~sell~~and ~~the~~inputs ~~security~~used ~~before~~to ~~recovery~~measure offair ~~its~~value ~~amortized~~was ~~cost~~required ~~basis,~~for orrecurring ~~(3)~~and annonrecurring ~~entity~~Level ~~does~~2 ~~not~~and ~~expect~~Level to3 ~~recover~~fair ~~the~~value ~~entire~~measurements. ~~amortized~~The ~~cost~~Company ~~basis~~adopted these provisions of the ~~security. If~~ASU anin ~~entity~~preparing ~~intends~~the toConsolidated ~~sell~~Financial aStatements ~~security~~for orthe ifperiod itended isMarch ~~more~~31, ~~likely~~2010. ~~than~~The ~~not~~adoption ~~that~~of ~~the~~these ~~entity~~provisions ~~will~~of ~~be required to sell~~ the ~~security before recovery~~ASU, anwhich ~~OTTI~~was ~~write-down~~subsequently iscodified ~~recognized~~into inAccounting ~~earnings~~Standards ~~equal~~Codification toTopic ~~the~~820, ~~entire~~Fair ~~difference~~Value ~~between~~Measurements ~~the~~and ~~security’s~~Disclosures, ~~amortized~~only ~~cost~~affected ~~basis~~the ~~and~~disclosure ~~its~~requirements for fair value~~. If~~ anmeasurements ~~entity~~and ~~does~~as ~~not~~a ~~intend to~~result ~~sell~~had ~~the~~no ~~security~~impact oron itthe isCompany’s ~~not~~statements ~~more~~of ~~likely~~income ~~than~~and ~~not~~condition. ~~that~~See itNote ~~will~~7 ~~be required~~ to ~~sell~~ the ~~security~~Consolidated ~~before~~Financial ~~recovery,~~Statements for the ~~OTTI~~disclosures ~~write-down~~required isby ~~separated~~this ~~into~~ASU. anThis ~~amount~~ASU ~~representing~~also ~~credit~~requires ~~loss,~~that ~~which~~Level is3 ~~recognized~~activity inabout ~~earnings~~purchases, ~~and~~sales, ~~an amount related to all other factors~~issuances, ~~which~~and issettlements ~~recognized~~be inpresented ~~other~~on ~~comprehensive~~a ~~income. This~~gross ~~accounting~~basis ~~standard~~rather ~~does~~than ~~not~~as ~~amend~~a ~~existing~~net ~~recognition~~number ~~and~~as ~~measurement~~currently ~~guidance~~permitted. ~~related~~This toprovision ~~OTTI write-downs~~ of ~~equity~~the ~~securities. This~~ASU ~~accounting~~is ~~standard~~effective ~~also~~for ~~extends disclosure~~the ~~requirements~~Company’s ~~related~~reporting toperiod ~~debt~~ending ~~and~~March ~~equity~~31, ~~securities~~2011. toAs ~~interim~~this ~~reporting~~provision ~~periods. The~~amends ~~Company~~only ~~adopted~~the ~~this~~disclosure ~~accounting~~requirements ~~standard~~for onfair ~~April~~value 1measurements, ~~2009. The~~the adoption ofwill ~~this standard did not~~ have ano ~~material~~ impact on the Company’s ~~consolidated financial~~ statements~~. See~~ ~~Note~~of 5income ~~for the disclosures required under this accounting standard, which was subsequently codified into ASC 320, “Investments – Debt~~ and ~~Equity Securities~~condition.”

In September 2006, the FASB issued an accounting standard related to fair value measurements, which was effective for the Company on January 1, 2008. This standard defined fair value, established a framework for measuring fair value, and expanded disclosure requirements about fair value measurements. On January 1, 2008, the Company adopted this accounting standard related to fair value measurements for the Company’s financial assets and financial liabilities. The Company deferred adoption of this accounting standard related to fair value measurements for the Company’s nonfinancial assets and nonfinancial liabilities, except for those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The adoption of this accounting standard related to fair value measurements for the Company’s nonfinancial assets and nonfinancial liabilities did not have a material impact on the Company’s consolidated financial statements. This accounting standard was subsequently codified into ASC 820, “Fair Value Measurements and Disclosures.”

In April 2009, the FASB issued an accounting standard which provided guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and in identifying transactions that are not orderly. In such instances, the accounting standard provides that management may determine that further analysis of the transactions or quoted prices is required, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with GAAP. The Company adopted this accounting standard on April 1, 2009. The provisions in this accounting standard were applied prospectively and did not result in significant changes to the Company’s valuation techniques. Furthermore, the adoption of this accounting standard, which was subsequently codified into ASC 820, “Fair Value Measurements and Disclosures,” is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued an accounting standard related to disclosures about the fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The Company adopted this accounting standard in preparing the Consolidated Financial Statements for the period ended June 30, 2009. As this accounting standard amended only the disclosure requirements about fair value of financial instruments in interim periods, the adoption had no impact on the Company’s consolidated financial statements. See Note 7 for the disclosures required under this accounting standard, which was subsequently codified into ASC 825, “Financial Instruments.”

On June 30, 2009, the Company adopted the revisions to GAAP accounting standards included in ASC 855, “Subsequent Events,” which provides guidance for disclosing events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of the revised guidance did not have any effect on the Company’s consolidated financial statements.

3.	EARNINGS PER SHARE

	Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s stock option plans.

	The following reflects earnings per share calculations for basic and diluted methods:

In June 2009, the FASB issued an accounting standard which amends current GAAP related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities, including the removal of the concept of a qualifying special-purpose entity from GAAP. This new accounting standard also clarifies that a transferor must evaluate whether it has maintained effective control of a financial asset by considering its continuing direct or indirect involvement with the transferred financial asset. This accounting standard is effective for financial asset transfers occurring after December 31, 2009. Management has not determined the impact adoption of this accounting standard may have on the Company’s consolidated financial statements.

	Three Months Ended
	March 31,
	2010		2009

Net income available to common shareholders	$	498,857	$	501,250

Basic average shares outstanding		1,920,817		1,946,906

Diluted potential common shares:
Stock option equivalents		3,559		-
Diluted average shares outstanding		1,924,376		1,946,906

Basic earnings per share	$	0.26	$	0.26

Diluted earnings per share	$	0.26	$	0.26

InStock ~~June~~options ~~2009, the FASB issued an accounting standard which will require a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity (“VIE”)~~ for ~~consolidation~~4,500 ~~purposes. The~~shares ~~primary beneficiary~~ of acommon ~~VIE~~stock isand ~~the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance~~33,345 ~~and~~shares ~~(2) the obligation to absorb losses~~ of ~~the~~common ~~VIE~~stock ~~that~~were ~~could~~not ~~potentially~~considered bein ~~significant~~computing todiluted ~~the~~earnings ~~VIE~~per orshare ~~the~~for ~~right to receive benefits of~~ the ~~VIE~~three ~~that~~month ~~could~~periods ~~potentially~~ending beMarch ~~significant to the VIE. This accounting standard is effective for the Company on January 1~~31, 2010~~. The~~ ~~adoption~~and of2009, ~~this~~respectively, ~~accounting~~because ~~standard~~they ~~will~~were ~~have no impact on the Company’s consolidated financial statements~~anti-dilutive.

In June 2009, the FASB issued ASU No. 2009-01 (formerly Statement No. 168), “Topic 105 – Generally Accepted Accounting Principles – FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.” The Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The codification does not change current GAAP, but is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. The Company adopted this standard for the interim reporting period ending September 30, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.

3. EARNINGS PER SHARE

Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s Stock Option Plans.

~~The~~4. ~~following~~LOAN ~~reflects~~PORTFOLIO ~~earnings~~COMPOSITION ~~per~~At ~~share~~March ~~calculations~~31, ~~for~~2010 ~~basic~~ and ~~diluted~~December ~~methods:~~31, 2009, the composition of the Company’s loan portfolio is shown below.

	3 Months Ended					9 Months Ended
	March 31, 2010					December 31, 2009
	September 30,					September 30,
	Amount		Percent			Amount		Percent
	2009		2008			2009		2008
Real estate loans:
Net income available to comon shareholders	$	537,216	$	498,797		$	965,642	$	1,285,946
One-to-four family residential	$	38,720,165		22.7	%	$	38,580,967		22.2	%
Basic potential common shares:
Commercial and agricultural		54,461,463		31.9			56,650,264		32.6
Weighted average shares outstanding		1,920,817		1,987,904			1,929,418		1,987,647
Multi-family residential		4,304,176		2.5			4,343,531		2.5
Diluted potential common shares:
Total real estate loans		97,485,804		57.1			99,574,762		57.3
Stock option equivalents		-		-			-		934
Commercial and agricultural business loans		33,468,425		19.6			34,393,456		19.8
Diluted average shares outstanding		1,920,817		1,987,904			1,929,418		1,988,581
Consumer loans:
Basic earnings per share	$	0.28	$	0.25		$	0.50	$	0.65
Home equity/home improvement		27,261,577		16.0			28,119,373		16.2
Diluted earnings per share	$	0.28	$	0.25		$	0.50	$	0.65
Automobile		6,160,782		3.6			6,117,802		3.5
Other		8,849,544		5.2			7,836,674		4.5
Total consumer loans		42,271,903		24.8			42,073,849		24.2
Total loans receivable		173,226,132		101.5			176,042,067		101.3
Less:
Net deferred loan fees, premiums and discounts		1,893		-			68,756		-
Allowance for loan losses		2,555,330		1.5			2,290,001		1.3
Total loans receivable, net	$	170,668,909		100.0	%	$	173,683,310		100.0	%

Stock options for 34,445 shares of common stock were not considered in computing diluted earnings per share for the three and nine months ended September 30, 2009, and the three months ended September 30, 2008, as they were anti-dilutive. Stock options for 5,600 shares of common stock were not considered in computing diluted earnings per share for the nine months ending September 30, 2008 as they were anti-dilutive.

4. LOAN PORTFOLIO COMPOSITION

At September 30, 2009 and December 31, 2008, the composition of the Company’s loan portfolio is shown below.

	September 30, 2009					December 31, 2008
	Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Real estate loans:
One-to-four family residential	$	39,657		22.1	%	$	46,807		25.6	%
Commercial and agricultural		60,961		34.0			56,516		30.9
Multi-family residential		4,385		2.4			4,518		2.5
Total real estate loans		105,003		58.5			107,841		59.0
Commercial and agricultural business loans		35,515		19.8			35,356		19.3
Consumer loans:
Home equity/home improvement		28,037		15.6			30,002		16.4
Automobile		6,177		3.5			5,842		3.2
Other		7,392		4.1			5,950		3.2
Total consumer loans		41,606		23.2			41,794		22.8
Total loans receivable		182,124		101.5			184,991		101.1
Less:
Net deferred loan fees, premiums and discounts		80		-			109		-
Allowance for loan losses		2,716		1.5			1,934		1.1
Total loans receivable, net	$	179,328		100.0	%	$	182,948		100.0	%

Activity in the allowance for loan losses was as follows:

	September 30, 2009			September 30, 2008
	March 31, 2010			March 31, 2009
	(In thousands)
Balance, beginning of year	$	2,290,001		$	1,934,072
Balance, beginning of year	$	1,934		$	1,766
Provision charged to expense		275,000			350,000
Provision charged to expense		2,150			165
Losses charged off, net of recoveries of $36,526
Losses charged off, net of recoveries of
and $7,519 for March 31, 2010 and 2009		(9,671	)		(1,605	)
$19 and $21 for September 30, 2009 and 2008		(1,368	)		(43	)
Balance, end of period	$	2,555,330		$	2,282,467
Balance, end of period	$	2,716		$	1,888

~~5. INVESTMENTS~~9

5. INVESTMENTS The amortized cost and approximate fair value of securities, all of which are classified as available-for-sale, are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			~~Approximate~~
	Cost		Gains		Losses			Fair Value
September 30, 2009:
March 31, 2010:
U.S. government agencies	$	10,542,686	$	129,538	$	(1,554	)	$	10,670,670
U.S. government and agencies	$	15,971,843	$	50,306	$	(61,188	)	$	15,960,961
Mortgage-backed securities		47,430,924		735,802		(4,957	)		48,161,769
Mortgage-backed securities (government-
State and political subdivisions		27,265,026		1,314,011		(20,319	)		28,558,718
sponsored enterprises - residential)		36,066,701		632,483		(57,300	)		36,641,884
	$	85,238,636	$	2,179,351	$	(26,830	)	$	87,391,157
Municipal bonds		30,277,116		467,407		(142,118	)		30,602,405
December 31, 2008:
	$	82,315,660	$	1,150,196	$	(260,606	)	$	83,205,250
U.S. government agencies	$	19,472,065	$	361,545	$	-		$	19,833,610
December 31, 2009:
Mortgage-backed securities		27,384,188		410,931		-			27,795,119
U.S. government and agencies	$	9,036,752	$	70,820	$	(27,556	)	$	9,080,016
State and political subdivisions		30,066,572		283,150		(544,399	)		29,805,323
Mortgage-backed securities (government-
	$	76,922,825	$	1,055,626	$	(544,399	)	$	77,434,052
sponsored enterprises - residential)		40,428,279		610,634		(54,518	)		40,984,395
Municipal bonds		27,661,381		531,363		(76,462	)		28,116,282
	$	77,126,412	$	1,212,817	$	(158,536	)	$	78,180,693

The amortized cost and fair value of available-for-sale securities at ~~September~~March 3031, ~~2009~~2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
Within one year	$	-316,037	$	-317,094
One to five years		37,~~722~~766,~~047~~149		37,~~845~~898,~~892~~798
Five to ten years		1924,~~641~~489,~~998~~600		2024,~~317~~613,~~588~~610
After ten years		1413,~~443~~677,~~667~~173		1513,~~065~~733,~~908~~864
		37,807,712		39,229,388
		46,248,959		46,563,366
Mortgage-backed securities		47,430,924		48,161,769
Mortgage-backed securities (government-
	$	85,238,636	$	87,391,157
sponsored enterprises - residential)		36,066,701		36,641,884
	$	82,315,660	$	83,205,250

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $3827,~~324~~549,000 at ~~September~~March 3031, 2010 and $31,178,000 at December 31, 2009. The book value of securities sold under agreement to repurchase amounted to $3,280,000 at March 31, 2010 and $433,~~048~~789,000 at December 31, ~~2008~~2009. Gross gains of $140,000 and $59,000 and gross losses of $0 resulting from sales of available-for-sale securities were realized during the three months ended March 31, 2010 and 2009, respectively. Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2010 was $27,095,000, which is approximately 33% of the Company’s available-for-sale investment portfolio.

The book value of securities sold under agreement to repurchase amounted to $5,090,000 at September 30, 2009 and $7,633,000 at December 31, 2008.

~~Gross~~Management ~~gains~~believes the declines in fair value for these securities are temporary. Should the impairment of ~~$437,276~~any ~~and~~of $1these securities become other than temporary,~~639~~ ~~and~~the ~~gross~~cost ~~losses~~basis of $0the investment will be reduced and the resulting ~~from~~loss ~~sales~~recognized ofin ~~available~~net income in the period the other-~~for~~than-~~sale~~temporary ~~securities~~impairment ~~were~~is ~~realized~~identified. ~~during~~The following table shows the ~~nine~~gross ~~months~~unrealized ~~ended~~losses ~~September~~and 30fair value, ~~2009~~aggregated by investment category and ~~2008~~length of time that individual securities have been in a continuous loss position, ~~respectively~~at March 31, 2010.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2009 was $3,371,000, which is approximately 3.86% of the Company’s available-for-sale investment portfolio.

	Less Than Twelve Months					Twelve Months or More				Total
	Gross					Gross				Gross
	Unrealized			Fair		Unrealized		Fair		Unrealized			Fair
	Losses			Value		Losses		Value		Losses			Value

Municipal bonds	$	(142,118	)	$	9,777,119	$	-	$	-	$	(142,118	)	$	9,777,119
U.S. government and agencies		(61,188	)		8,864,013		-		-		(61,188	)		8,864,013
Subtotal		(203,306	)		18,641,132		-		-		(203,306	)		18,641,132

Mortgage-backed securities
(government sponsored
enterprises - residential)		(57,300	)		8,454,016		-		-		(57,300	)		8,454,016

Total	$	(260,606	)	$	27,095,148	$	-	$	-	$	(260,606	)	$	27,095,148

~~Management~~The ~~believes~~unrealized losses on the ~~declines~~Company’s investments in ~~fair~~municipal ~~value~~bonds, ~~for~~U.S. ~~these~~government and agencies, and mortgage-backed securities ~~are~~were ~~temporary. Should~~caused ~~the~~by ~~impairment~~interest ofrate ~~any~~increases. The contractual terms of these investments do not permit the issuer to settle the securities ~~become~~at ~~other~~a ~~than~~price ~~temporary,~~less than the amortized cost ~~basis~~bases of the ~~investment~~investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be ~~reduced~~required ~~and~~to sell the ~~resulting~~investments ~~loss~~before ~~recognized~~recovery inof ~~net~~their ~~income~~amortized incost ~~the~~bases, ~~period~~which may be maturity, the Company does not consider these investments to be other-than-~~temporary~~temporarily ~~impairment~~impaired isat ~~identified~~March 31, 2010.

The following table shows the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at September 30, 2009.

	Less Than Twelve Months					Twelve Months or More				Total
	Gross					Gross				Gross
	Unrealized			Fair		Unrealized		Fair		Unrealized			Fair
	Losses			Value		Losses		Value		Losses			Value
State and political
subdivisions	$	(20,319	)	$	237,472	$	-	$	-	$	(20,319	)	$	237,472
U.S. government
and agencies		(1,554	)		1,498,447		-		-		(1,554	)		1,498,447
Subtotal		(21,873	)		1,735,919		-		-		(21,873	)		1,735,919
Mortgage-backed
securities		(4,957	)		1,635,050		-		-		(4,957	)		1,635,050
Total	$	(26,830	)	$	3,370,969	$	-	$	-	$	(26,830	)	$	3,370,969

The unrealized losses on the Company’s investments in state and political subdivisions, U.S. government agencies, and mortgage-backed securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2009.

6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows:

Other comprehensive income (loss) components and related taxes were as follows:

	March 31, 2010			March 31, 2009
Net unrealized gain (loss) on securities available-for-sale	$	(24,663	)	$	135,871
Less reclassification adjustment for realized (gains)
losses included in income		140,028			59,315
Other comprehensive income (loss) before tax effect		(164,691	)		76,556
Tax expense (benefit)		55,995			(25,435	)
Other comprehensive income (loss)	$	(108,696	)	$	51,121

	September 30, 2009			September 30, 2008
Net unrealized gain (loss) on securities available-for-sale	$	2,078,570		$	(1,181,953	)
Less reclassification adjustment for realized gains
included in income		437,276			1,639
Other comprehensive income (loss) before tax effect		1,641,294			(1,183,592	)
Tax effect		(558,040	)		402,421
Other comprehensive income (loss)	$	1,083,254		$	(781,171	)

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

The components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:

	March 31, 2010			March 31, 2009
Net unrealized gain on securities available-for-sale	$	889,590		$	588,683
Tax effect		(302,461	)		(200,152	)
Net-of-tax amount	$	587,129		$	388,531

		September 30, 2009			September 30, 2008
7.	DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
Net unrealized gain (loss) on securities available-for-sale		$	2,152,521		$	(1,271,677	)
	The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:
Tax effect			(731,857	)		432,370
	ASC Topic 820, Fair Value Measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Net-of-tax amount		$	1,420,664		$	(839,307	)
	Level 1	Quoted prices in active markets for identical assets or liabilities
	Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
	Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
	Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

7. DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

Effective January 1, 2008, the Company adopted Financial Accounting Standards Board Accounting Standards Codification 820 (“ASC 820”), “Fair Value Measurements.” ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 has been applied prospectively as of the beginning of the period.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the inputs and valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities – The fair value of available-for-sale securities are determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company has no Level 1 securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities include certain U.S. agency bonds, collateralized mortgage and debt obligations, and certain municipal securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities. The Company does not have any securities classified as Level 3.

Available-for-Sale Securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company has no Level 1 securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For those investments, the inputs used by the pricing service to determine fair value may include one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data market research publications are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and agencies, mortgage-backed securities (Government-sponsored enterprises – residential) and municipal bonds. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company did not have securities considered Level 3 as of March 31, 2010. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the ~~ASC 820~~ fair value hierarchy in which the fair value measurements fall at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008.~~2009:

September 30, 2009			Fair Value Measurements Using
March 31, 2010			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale
U.S. Government and
securities	$	87,391,157	$	-	$	87,391,157	$	-
agencies	$	15,960,961	$	-	$	15,960,961	$	-
Mortgage-backed securities
(Government sponsored
enterprises - residential)		30,602,405		-		30,602,405		-
Municipal bonds		36,641,884		-		36,641,884		-

December 31, 2008			Fair Value Measurements Using
December 31, 2009			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale
U.S. Government and
securities	$	77,434,052	$	-	$	77,434,052	$	-
agencies	$	9,080,016	$	-	$	9,080,016	$	-
Mortgage-backed securities
(Government sponsored
enterprises - residential)		40,984,395		-		40,984,395		-
Municipal bonds		28,116,282		-		28,116,282		-

Impaired Loans – Loans for which it is probable that the Company will not collect all principal and interest due according to the contractual terms are measured for impairment in accordance with the provisions of ASC 310, “Accounting by Creditors for Impairment of a Loan.” Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method required obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, premiums or discounts existing at origination or acquisition of the loan.

Impaired loans are classified within Level 3 of the fair value hierarchy.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. Impaired Loans (Collateral Dependent) - Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. Mortgage Servicing Rights –- The fair value used to determine the valuation allowance is estimated using ~~the~~ discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy. Foreclosed Assets – Foreclosed assets consist primarily of real estate owned. Real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the real estate owned or foreclosed asset could differ from the original estimate and are classified within Level 3 of the fair value hierarchy. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of real estate owned and foreclosed assets are netted and posted to non-interest expense. The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2010 and December 31, 2009:

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at September 30, 2009 and December 31, 2008.

March 31, 2010

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans

(collateral dependent)

2,645,461

Mortgage servicing rights

848,475

Foreclosed assets

628,672

September 30, 2009

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans

2,053,925

Mortgage servicing

rights

799,314

December 31, 2008

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans

972,797

Mortgage servicing

rights

545,494

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and Cash Equivalents and Federal Home Loan Bank Stock – The carrying amount approximates fair value.

Available-for-sale Securities – Fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based upon quoted market process of similar securities.

Other Investments – The carrying amount approximates fair value.

Loans Held for Sale – For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

Loans – The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

Deposits – Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

December 31, 2009

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans

(collateral dependent)

3,145,003

3,154,003

Mortgage servicing rights

850,313

Foreclosed assets

382,879

~~Short-term~~The ~~Borrowings,~~following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value. Cash and Cash Equivalents and Federal Home Loan Bank ~~Advances~~Stock - The carrying amount approximates fair value. Other Investments - The carrying amount approximates fair value. Loans Held for Sale - For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. Loans - The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value. Deposits - Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. Short-term Borrowings, Interest Payable, and Advances ~~From~~from Borrowers for Taxes and Insurance –- The carrying amount approximates fair value. Federal Home Loan Bank Advances - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value. Commitments to Originate Loans, Letters of Credit, and Lines of Credit - The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

Commitments to Originate Loans, Letters of Credit, and Lines of Credit – The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

The following table presents estimated fair values of the Company’s financial instruments in accordance with ASC 825 not previously disclosed as of September 30, 2009 and December 31, 2008.

	September 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets
Cash and cash equivalents	$	7,316,015	$	7,316,015	$	7,145,288	$	7,145,288
Available-for-sale securities		87,391,157		87,391,157		77,434,052		77,434,052
Other investments		212,645		212,645		240,321		240,321
Loans, held for sale		914,142		914,142		1,388,284		1,388,284
Loans, net of allowance for loan losses		179,328,424		177,055,825		182,948,292		181,308,061
Federal Home Loan Bank stock		1,108,606		1,108,606		1,108,606		1,108,606
Interest receivable		3,024,111		3,024,111		2,344,502		2,344,502
Financial Liabilities
Deposits		253,697,173		257,161,775		238,151,228		240,721,801
Short-term borrowings		5,089,992		5,089,992		7,633,079		7,633,079
Federal Home Loan Bank advances		5,000,000		5,008,748		13,500,000		13,593,469
Advances from borrowers for taxes
and insurance		300,363		300,363		445,077		445,077
Interest payable		789,777		789,777		925,661		925,661
Unrecognized financial instruments (net
of contract amount)
Commitments to originate loans		-		-		-		-
Letters of credit		-		-		-		-
Lines of credit		-		-		-		-

8.The ~~FEDERAL~~following ~~HOME~~table ~~LOAN~~presents ~~BANK~~estimated ~~STOCK~~fair values of the Company’s financial instruments at March 31, 2010 and December 31, 2009:

The Company owns approximately $1.1 million of Federal Home Loan Bank of Chicago (“FHLB”) stock. During the third quarter of 2007, the FHLB received a Cease and Desist Order from their regulator, the Federal Housing Finance Board. The order prohibits capital stock repurchases and redemptions until a time to be determined by the Federal Housing Finance Board. The FHLB will continue to provide liquidity and funding through advances. With regards to dividends, the FHLB will continue to assess their dividend capacity each quarter and make appropriate requests for approval. Management performed an analysis and deemed the investment in FHLB stock was not other-than-temporarily impaired as of September 30, 2009 or December 31, 2008.

	March 31, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets
Cash and cash equivalents	$	14,792,417	$	14,792,417	$	15,696,474	$	15,696,474
Available-for-sale securities		83,205,250		83,205,250		78,180,693		78,180,693
Other investments		146,836		146,836		149,902		149,902
Loans, held for sale		149,542		149,542		814,074		814,074
Loans, net of allowance for loan losses		170,668,909		168,686,394		173,683,310		171,479,887
Federal Home Loan Bank stock		1,108,606		1,108,606		1,108,606		1,108,606
Interest receivable		2,071,770		2,071,770		1,988,394		1,988,394
Financial Liabilities
Deposits		255,138,465		258,223,470		254,700,223		257,948,804
Short-term borrowings		3,280,319		3,280,319		3,789,453		3,789,453
Advances from borrowers for taxes
and insurance		852,043		852,043		508,356		508,356
Interest payable		671,079		671,079		734,903		734,903
Unrecognized financial instruments (net
of contract amount)
Commitments to originate loans		-		-		-		-
Letters of credit		-		-		-		-
Lines of credit		-		-		-		-

98. ~~MORTGAGE~~FEDERAL ~~SERVICING~~HOME ~~RIGHTS~~LOAN BANK STOCK The Company owns $1,108,606 of Federal Home Loan Bank stock as of March 31, 2010. The Federal Home Loan Bank of Chicago (FHLB) is operating under a Cease and Desist Order from their regulator, the Federal Housing Finance Board. The order prohibits capital stock repurchases and redemptions until a time to be determined by the Federal Housing Finance Board. The FHLB will continue to provide liquidity and funding through advances. With regard to dividends, the FHLB will continue to assess their dividend capacity each quarter and make appropriate request for approval. The FHLB did not pay a dividend during 2010 or 2009. Management performed an analysis and deemed the cost method investment in FHLB stock is ultimately recoverable and therefore not impaired.

Activity in the balance of mortgage servicing rights, measured using the amortization method, for the nine month period ending September 30, 2009 and the year ended December 31, 2008 was as follows:

	September 30, 2009			December 31, 2008
Balance, beginning of year	$	545,494		$	965,679
Servicing rights capitalized		341,460			204,248
Amortization of servicing rights		(307,638	)		(196,403	)
Change in valuation allowance		219,998			(428,030	)
Balance, end of period	$	799,314		$	545,494

Activity in the valuation allowance for mortgage servicing rights for the nine month period ending September 30, 2009 and the year ended December 31, 2008 was as follows:

	September 30, 2009			December 31, 2008
Balance, beginning of year	$	428,030		$	-
Additions		-			428,030
Reductions		(219,998	)		-
Balance, end of period	$	208,032		$	428,030

10. INCOME TAXES

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the nine months ended September 30, 2009 and 2008 is shown below.

	September 30, 2009			September 30, 2008
Computed at the statutory rate (34%)	$	331,323		$	554,520
Increase (decrease) resulting from
Tax exempt interest		(270,715	)		(202,016	)
State income taxes, net		31,281			51,479
Increase in cash surrender value		(45,992	)		(40,811	)
Deferred tax on benefit plans		(42,786	)		(41,354	)
Other, net		5,726			23,178
Actual tax expense	$	8,837		$	344,996

119. ~~COMMITMENTS~~MORTGAGE ~~AND~~SERVICING ~~CONTINGENCIES~~RIGHTS Activity in the balance of mortgage servicing rights, measured using the amortization method, for the three month period ending March 31, 2010 and the year ended December 31, 2009 was as follows:

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.

	March 31, 2010			December 31, 2009
Balance, beginning of year	$	850,313		$	545,494
Servicing rights capitalized		25,322			391,746
Amortization of servicing rights		(43,678	)		(358,515	)
Change in valuation allowance		16,518			271,588
Balance, end of period	$	848,475		$	850,313

~~12.~~Activity ~~SUBSEQUENT~~in ~~EVENTS~~the valuation allowance for mortgage servicing rights for the three month period ending March 31, 2010 and the year ended December 31, 2009 was as follows:

Subsequent events have been evaluated through November 5, 2009, which is the date the financial statements were issued.

	March 31, 2010			December 31, 2009
Balance, beginning of year	$	156,442		$	428,030
Additions		-			-
Reductions		(16,518	)		(271,588	)
Balance, end of period	$	139,924		$	156,442

10.	INCOME TAXES

	A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the three months ended March 31, 2010 and 2009 is shown below.

	March 31, 2010			March 31, 2009
Computed at the statutory rate (34%)	$	206,712		$	211,669
Increase (decrease) resulting from
Tax exempt interest		(94,004	)		(83,950	)
State income taxes, net		25,192			22,163
Increase in cash surrender value		(30,820	)		(30,450	)
Other, net		2,038			1,874

Actual tax expense	$	109,118		$	121,306

11.	COMMITMENTS AND CONTINGENCIES

	The Company is a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the resolution of these actions will not have any material adverse effect on the Company's consolidated financial statements.

	The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and accompanying notes thereto.

Forward- Looking Statements

This Form 10-Q contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, the effect of the current severe disruption in financial markets and the United States government programs introduced to restore stability and liquidity, changes in interest rates, general economic conditions and the weakening state of the United States economy, deposit flows, demand for mortgage and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing of products and services.

Critical Accounting Policies and Use of Significant ~~estimates~~Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in preparing our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. Management believes the following discussion addresses our most critical accounting policies and significant estimates, which are those that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective and complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Allowance for Loan Losses - The Company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is a material estimate that is particularly susceptible to significant changes in the near term and is established through a provision for loan losses. The allowance is based upon past loan experience and other factors which, in management’s judgement, deserve current recognition in estimating loan losses. The evaluation includes a review of all loans on which full collectibility may not be reasonably assured. Other factors considered by management include the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and historical losses on each portfolio category. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties, which collateralize loans. Management uses the available information to make such determinations. If circumstances differ substantially from the assumptions used in making determinations, ~~future~~ future adjustments to the allowance for loan losses may be necessary and results of operations could be affected. While we believe we have established our existing allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing the ~~Bank~~Company’s loan portfolio, will not request an increase in the allowance for loan losses. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary if loan quality deteriorates.

1819

Other Real Estate Owned - Other real estate owned acquired through loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing fair value when the asset is acquired, the actual fair value of the other real estate owned could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, the asset is written down through a charge to non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned are netted and posted to non-interest expense.

Deferred Income Tax Assets/Liabilities – Our net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income. Deferred tax assets and liabilities are established for these items as they arise. From an accounting standpoint, deferred tax assets are reviewed to determine that they are realizable based upon the historical level of our taxable income, estimates of our future taxable income and the reversals of deferred tax liabilities. In most cases, the realization of the deferred tax asset is based on our future profitability. If we were to experience net operating losses for tax purposes in a future period, the realization of our deferred tax assets would be evaluated for a potential valuation reserve.

Impairment of Goodwill - Goodwill, an intangible asset with an indefinite life, was recorded on our balance sheet in prior periods as a result of acquisition activity. Goodwill is evaluated for impairment annually, unless there are factors present that indicate a potential impairment, in which case, the goodwill impairment test is performed more frequently.

Mortgage Servicing Rights - Mortgage servicing rights are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. ~~Mortgage servicing rights are also sensitive to the level of delinquent and nonperforming loans which impair the receipt of net servicing income.~~

Fair Value Measurements – The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company estimates the fair value of financial instruments using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Company estimates fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value. Imprecision in estimating these factors can impact the amount of revenue or loss recorded.

ASC Topic 820, “Fair Value Measurements,” establishes a framework for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and establishes a three-level hierarchy for determining fair value based upon transparency of inputs to each valuation as of the fair value measurement date. The three levels are defined as follows:

	●	Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets
	●	Level 2 – inputs include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	●	Level 3 – inputs that are unobservable and significant to the fair value measurement.

1920

At the end of each quarter, the Company assesses the valuation hierarchy for each asset or liability measured. From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of a hierarchy are based upon the fair value at the beginning of the reporting period.

The above listing is not intended to be a comprehensive list of all our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgement in their application. There are also areas in which management’s judgement in selecting any available alternative would not produce a materially different result.

Federal Deposit Insurance Corporation Insurance Coverage

As with all banks insured by the ~~Federal Deposit Insurance Corporation (“~~FDIC”), the Company’s depositors are protected against the loss of their insured deposits by the FDIC. The FDIC ~~has~~recently made two changes to the rules that broadened the FDIC insurance. The FDIC ~~increased~~has temporarily increased basic FDIC insurance coverage from $100,000 to $250,000 per depositor until December 31, 2013. In addition, ~~on October 14, 2008~~ the FDIC has instituted a Temporary Liquidity Guaranty Program (“TLGP”) which provides full deposit insurance coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2010. The FDIC defines a “non-interest bearing transaction account” as a transaction account on which the insured depository institution pays no interest and does not reserve the right to to require advance notice of intended withdrawals. This coverage is over and above the $250,000 in ~~coverage~~deposit insurance otherwise provided to a customer. The Company opted into the TLGP. The additional cost of this program, assessed on a quarterly basis, is a 10 basis point annualized surcharge on balances in non-interest bearing transaction accounts that exceed $250,000.

The Company has chosen to participate in the TLGP. The additional cost of this program, assessed on a quarterly basis, is a 10 basis point annualized surcharge (2.5 basis points quarterly) on balances in non-interest bearing transaction accounts that exceed $250,000. The Company does not believe this amount will have a material effect on its consolidated financial statements.

On September 29, 2009, the Federal Deposit Insurance Corporation issued a proposed rule pursuant to which all insured depository institutions would be required to prepay their estimated assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Under the proposed rule, this pre-payment would be due on December 31, 2009. Under the proposed rule, the assessment rate for the fourth quarter of 2009 and for 2010 would be based on each institution’s total base assessment rate for the third quarter of 2009, modified to assume that the assessment rate in effect on September 30, 2009 had been in effect for the entire third quarter, and the assessment rate for 2011 and 2012 would be equal to the modified third quarter assessment rate plus an additional 3 basis points. In addition, each institution’s base assessment rate for each period would be calculated using its third quarter assessment base, adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012.

Recent Developments

AOn January ~~legislative~~19, ~~proposal~~2010, ~~has~~Jacksonville ~~been~~Bancorp, ~~introduced~~Inc. announced that ~~would~~the ~~eliminate~~Boards of Directors of Jacksonville Bancorp, MHC, Jacksonville Bancorp, Inc. and Jacksonville Savings Bank unanimously adopted a Plan of Conversion and Reorganization. Under the ~~primary~~terms ~~federal~~of ~~regulator~~the Plan of Conversion and Reorganization, we will undertake a “second-step” conversion, and reorganize from a two-tier mutual holding company structure to a stock holding company structure. As a result of the conversion, Jacksonville Savings Bank will become a wholly owned subsidiary of a new Maryland holding company and shares of common stock of Jacksonville Bancorp, Inc. held by persons other than Jacksonville Bancorp, MHC (whose shares will be canceled) will be converted into shares of common stock of the new holding company pursuant to an exchange ratio designed to preserve the percentage ownership interests of such persons. The new holding company will offer and sell shares of its common stock to members of Jacksonville Bancorp, MHC, stockholders of Jacksonville Bancorp, Inc. and ~~require~~others in the manner and subject to the priorities set forth in the Plan of Conversion and Reorganization. The transactions contemplated by the Plan of Conversion and Reorganization are subject to approval of Jacksonville Bancorp, Inc.’s tostockholders, ~~become~~the amembers ~~bank~~of Jacksonville ~~holding~~Bancorp, ~~company~~MHC and the Office of Thrift Supervision. We anticipate that the second-step conversion will be completed in the third quarter of the 2010 calendar year.

2021

The U.S. Treasury Department recently introduced proposed legislation that would significantly change the current bank regulatory system. The proposal would create a new federal banking regulator, the National Bank Supervisor, and merge the Office of Thrift Supervision, which is the primary federal regulator of Jacksonville Bancorp, MHC and Jacksonville Bancorp, Inc., as well as the Office of the Comptroller of the Currency (the primary federal regulator for national banks) into the new federal bank regulator.

Under this legislation as proposed, Jacksonville Bancorp, Inc. would become a bank holding company subject to regulation and supervision by the Board of Governors of the Federal Reserve System instead of the Office of Thrift Supervision. As a bank holding company, Jacksonville Bancorp, Inc. may become subject to regulatory capital requirements it would not be subject to as a savings and loan holding company and certain additional restrictions on its activities. Compliance with new regulations and being supervised by one or more new regulatory agencies could increase our expenses.

Financial Condition

~~September 30~~March 31, ~~2009~~2010 Compared to December 31, ~~2008~~2009

Total assets increased by $~~6.6~~585,000 ~~million~~ to $~~294~~289.94 million at ~~September~~March 3031, ~~2009~~2010 from $288.3 8 million at December 31, ~~2008~~2009. Net loans decreased $3.60 million, or 1.7%, to $~~179~~170.37 million at ~~September~~March 3031, 2010 from $173.7 million at December 31, 2009. The decrease in net loans reflected decreases of $2.2 million in commercial and agricultural real estate loans and $925,000 ~~primarily~~in ~~due~~commercial toand agricultural ~~increased~~business ~~loan~~loans, ~~sales~~due to both payoffs and the ~~secondary~~seasonal ~~market~~nature of agricultural business loan originations. Available-for-sale investment securities ~~decreased~~increased $109.4 million ~~primarily~~, ~~due~~or 25.2%, to $1646.6 million inat March ~~calls~~31, of2010 Ufrom $37.S.2 ~~agency~~million ~~bonds~~at ~~and~~December ~~$16.7~~31, ~~million~~2009 inprimarily ~~sales~~due to reinvestment of ~~investment~~funds from calls, payments on mortgage-backed securities and decreased loan volume. Mortgage-backed securities ~~increased~~decreased $204.4 million, ~~during~~or ~~this~~10.6%, ~~same~~to ~~time~~$36.6 ~~frame~~million at March 31, ~~primarily~~2010 ~~due~~from to$41.0 ~~the~~million ~~reinvestment~~at December of31, ~~funds~~2009 ~~from~~due ~~investment~~primarily ~~calls~~to ~~and~~principal ~~sales~~payments. ~~The~~In ~~reinvestment~~order ofto increase ~~the~~variable ~~net~~interest ~~proceeds~~rate ~~from~~securities ~~investments~~in ~~into~~our ~~mortgage-backed~~investment ~~securities~~portfolio ~~reflects~~during the ~~management’s~~first ~~decision~~quarter toof ~~restructure~~2010, awe ~~portion~~increased of the ~~investment~~balance ~~portfolio~~of ~~into~~our ~~lower~~variable ~~risk~~rate mortgage-~~weighted~~backed securities~~. Deposits grew~~ portfolio by $~~15.~~5.2 million ~~during~~to ~~the~~$8.3 ~~first~~million ~~nine~~as ~~months~~ of ~~2009~~March 31, 2010. ~~Other~~Cash ~~borrowings~~and cash equivalents decreased $~~11.0~~904,000 ~~million primarily due~~ to ~~the repayment of~~ $814.5 8 million inat ~~advances~~March ~~from~~31, ~~the~~2010 ~~Federal~~from ~~Home~~$15.7 ~~Loan~~million ~~Bank~~at ~~during~~December ~~the~~31, ~~first quarter of~~ 2009.

~~Stockholders’~~Total deposits ~~equity~~ increased $~~1.4~~438,000 ~~million~~ to $25255.61 million at ~~September~~March 3031, ~~2009. Changes in stockholders’ equity include net income of $966~~2010,~~000,~~ ~~offset~~primarily bydue to ~~the payment of $199,000 in dividends, and~~ a $1.18 million increase in ~~unrealized~~transaction ~~gains~~accounts, ~~net~~which ofwas ~~tax,~~partially onoffset by ~~available-for-sale~~a ~~securities~~$1. ~~The~~2 ~~change~~million decrease in ~~unrealized~~ ~~gains~~time ~~or losses on available-for-sale securities results from market conditions and, therefore, can fluctuate daily~~deposits. ~~Stockholders’~~Other ~~equity~~borrowings, ~~was~~which consisted ~~also~~of ~~affected~~overnight byrepurchase ~~the~~agreements, ~~purchase~~decreased of $~~486~~509,000 into ~~treasury~~$3.3 ~~stock~~million at ~~during~~March ~~the~~31, ~~first quarter of 2009~~2010.

Stockholders’ equity increased $324,000 to $25.6 million at March 31, 2010. The increase in stockholders’ equity was the result of net income of $499,000, which was partially offset by the payment of $66,000 in dividends and $109,000 in other comprehensive loss. Other comprehensive loss consisted of the decrease in net unrealized gains, net of tax, on available-for-sale securities reflecting changes in market prices for securities in our portfolio. Other comprehensive loss does not include changes in the fair value of other financial instruments included on the balance sheet.

Results of Operations

Comparison of Operating Results for the Three Months Ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~ 2009

General: ~~The Company reported net~~ Net income for the three months ended ~~September~~March 3031, ~~2009,~~2010 ofwas $~~537~~499,000, or $0.2826 per ~~share of~~ common ~~stock~~share, basic and diluted, compared to net income of $~~499~~501,000, or $0.25 26 per ~~share of~~ common ~~stock~~share, basic and diluted, for the three months ended ~~September~~March 3031, ~~2008~~ 2009. ~~Net~~The ~~income increased~~ $382,000 decrease in net income was due to ~~increases~~a of $~~220~~103,000 decrease in net interest income and a $2732,000 increase in ~~other~~non-interest ~~income~~expense, partially offset by ~~increases~~a of $~~145~~75,000 decrease in ~~provisions~~the provision for loan losses, ~~and~~ a $6412,000 decrease in ~~other~~income ~~expenses. During~~taxes ~~2009~~and a $46,000 ~~the~~increase ~~Company’s~~in ~~operations~~non-interest income. Our ~~have~~net ~~benefited~~interest ~~from~~income ~~the~~continues ~~steepening~~to ofbenefit ~~the~~from a steep yield curve,. Low ~~as lower~~ short-term market interest rates ofhave ~~interest~~ resulted in our ~~deposits~~cost ~~and~~of ~~borrowings~~funds ~~repricing~~decreasing ~~downward~~ faster ~~and~~than ~~more~~the ~~aggressively~~yield ~~than~~ on our loans,. Our interest ~~which~~income ~~have~~has ~~yields~~been ~~tied~~negatively toaffected ~~longer~~by a decrease in interest income from mortgage-~~term~~backed ~~rates~~securities.

Interest Income: Total interest income for the three months ended ~~September 30~~March 31, ~~2009~~2010 decreased $~~323~~539,000, or 14.3%, to $3.2 million from ~~the~~$3.8 million for the same period of ~~2008~~2009. The decrease in interest income ~~reflects~~reflected ~~decreases~~a $307,000 decrease in interest income ofon ~~$69,000 from~~ loans, a $~~177~~62,000 ~~from~~decrease in interest income on investment securities, a $62168,000 ~~from~~decrease in interest income on mortgage-backed securities, and a $152,000 ~~from~~decrease in other interest-earning assets.

21Interest income on loans decreased $307,000 to $2.7 million for the first quarter of 2010 from $3.0 million for the first quarter of 2009 due to decreases in the average yield on loans and the average balance of loans. The average yield decreased to 6.11% during the first quarter of 2010 from 6.46% during the first quarter of 2009. The 35 basis point decrease primarily reflected the low interest rate environment. The average balance of the loan portfolio decreased $9.6 million to $174.9 million for the first quarter of 2010. The decrease in the average balance of the loan portfolio reflected a decrease in residential real estate loans due to higher loan sales to the secondary market during 2009.

Interest income on loans decreased $69,000 primarily due to a decrease in the average yield to 6.33% during the third quarter of 2009 from 6.68% during the third quarter of 2008. The 35 basis point decrease was partially offset by an increase of $5.6 million in the average balance of the loan portfolio to $183.6 million during the third quarter of 2009 compared to the third quarter of 2008. The increase in the average balance of the portfolio is primarily due to an increase in the commercial real estate portion of the loan portfolio.

The $177,000 decrease in interest income on investment securities reflects a decrease of $18.5 million in the average balance of the portfolio to $36.9 million during the third quarter of 2009, compared to the third quarter of 2008. The decrease in the average balance is primarily due to calls and sales of investment securities, which were partially reinvested into U.S. agency mortgage-backed securities. The average yield of investment securities equaled 3.86% during the third quarters of 2009 and 2008. This reported yield does not reflect the benefit of the higher tax-equivalent yield of our municipal bonds, which is reflected in income tax expense.

Interest income on mortgage-backed securities decreased $62,000 during the third quarter of 2009 compared to the third quarter of 2008. The decreased interest income on mortgage-backed securities reflects a decrease in the average yield to 3.22% from 5.00% during the third quarters of 2009 and 2008, respectively. The decrease in the average yield is primarily due to accelerated premium amortization resulting from higher prepayments on the mortgage-backed securities. The decrease in the average yield was partially offset by an increase of $12.1 million in the average balance of mortgage-backed securities to $48.0 million during the third quarter of 2009.

Interest income on other interest-earning assets, which consist of interest-earning deposit accounts and federal funds sold, decreased $15,000 during the third quarter of 2009 primarily due to a 187 basis point decrease in the average yield. The average yield of these other interest-earning assets decreased to 0.14% during the third quarter of 2009 from 2.01% during the third quarter of 2008, reflecting the decrease in short-term market rates of interest. The average balance of these accounts increased $1.4 million to $4.6 million for the three months ended September 30, 2009 compared to the same period of 2008.

Interest Expense: Total interest expense for the three months ended September 30, 2009 decreased $543,000 compared to the three months ended September 30, 2008. The lower interest expense was due to decreases of $416,000 in the cost of deposits and $127,000 in interest expense on borrowed funds.

The decrease in the cost of deposits is primarily due to a decrease in the average rate paid to 2.18% during the third quarter of 2009 from 3.01% during the third quarter of 2008. The 83 basis point decline reflects the decrease in short-term market rates during 2008. The decrease in the average cost was partially offset by an increase of $10.5 million in the average balance of deposits during this same time frame. The increase primarily reflects increases in savings and money market accounts.

Interest paid on borrowed funds decreased $127,000 primarily due to a 226 basis point decrease in the average rate. The average rate paid on borrowed funds decreased to 0.93% during the third quarter of 2009 compared to 3.19% during the third quarter of 2008, reflecting the decrease in market rates. The average balance of borrowed funds also decreased $9.0 million to $9.8 million during the third quarter of 2009, primarily due to a $7.2 million decrease in the average balance of advances from the Federal Home Loan Bank. The remainder of the balance consists of securities sold under agreements to repurchase.

Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb inherent losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America.

~~The~~Interest income ~~allowance~~on ~~for~~investment ~~loan~~securities ~~losses~~decreased ~~increased~~ $~~782~~62,000 to $~~2.7~~400,000 ~~million~~for atthe ~~September~~first quarter ~~30,~~of ~~2009~~2010 from $~~1.9~~462,000 ~~million~~for atthe ~~December~~first ~~31,~~quarter ~~2008~~of 2009. The ~~increase~~decrease reflected isa ~~the~~$6.3 ~~result~~million ofdecrease in the ~~provision~~average ~~for~~balance ~~loan~~of ~~losses~~the ~~exceeding~~investment securities ~~net~~portfolio ~~charge-offs~~to ~~during 2009~~$40. ~~The~~3 ~~Company~~million ~~recorded~~during ~~net~~the ~~recoveries~~first quarter of $22010,~~000~~ ~~and~~compared to $46.6~~,000~~ million for the ~~third~~first ~~quarters~~quarter of 2009 ~~and 2008, respectively~~. The ~~provision~~decrease ~~for~~in ~~loan~~the average ~~losses~~balance ~~increased~~was primarily due to ~~$250,000~~calls ~~during~~of ~~the~~U.S. ~~third~~agency ~~quarter~~securities, the majority of ~~2009~~which ~~from~~were ~~$105,000~~reinvested ~~during~~in ~~the~~tax-free ~~third~~municipal ~~quarter~~bonds, ofas ~~2008~~well as mortgage-backed securities. The ~~$145,000~~average ~~increase~~yield inof ~~the~~investment securities ~~provision~~was ~~reflects~~unchanged anat ~~increase~~3.97% induring the ~~average~~first ~~balance~~quarters of 2010 and 2009. The average yield does not reflect the ~~loan~~benefit ~~portfolio,~~of ~~primarily~~the inhigher tax-equivalent ~~commercial~~yield ~~real~~of ~~estate~~our municipal bonds, ~~and~~which anis ~~increase~~reflected in ~~watch~~income ~~list credits~~tax expense.

~~Provisions~~Interest income on mortgage-backed securities decreased $168,000 to $161,000 for ~~loan~~the first ~~losses~~quarter ~~have~~of ~~been~~2010, ~~made~~compared to ~~bring~~$329,000 for the ~~allowance~~first ~~for~~quarter ~~loan~~of 2009. The ~~losses~~decrease toreflected a ~~level~~306 ~~deemed~~basis ~~adequate~~point ~~following~~decrease ~~management’s~~in ~~evaluation~~the average yield of mortgage-backed securities to 1.66% for the ~~repayment~~first ~~capacity~~quarter ~~and~~of 2010, ~~collateral~~compared ~~protection~~to ~~afforded~~4.72% byfor ~~each~~the ~~problem~~first ~~credit~~quarter ~~identified~~of 2009. The average yield has been affected by ~~management~~accelerated premium amortization resulting from higher national prepayment speeds on mortgage-backed securities. ~~This~~The amortization ~~review~~of ~~also~~premiums ~~considered~~on mortgage-backed securities, which reduces the average ~~local~~yield, ~~economy~~increased ~~and~~to $330,000 during the ~~level~~first quarter of ~~bankruptcies~~2010, compared ~~and~~to ~~foreclosures~~$40,000 induring the ~~Company’s~~first ~~market~~quarter ~~area~~of 2009. The ~~following~~decrease ~~table~~in ~~sets~~the average ~~forth~~yield ~~information~~was ~~regarding~~partially ~~nonperforming~~offset ~~assets~~by ata $10.9 million increase in the ~~dates~~average balance ~~indicated~~of mortgage-backed securities to $38.9 million during the first quarter of 2010.

	September 30, 2009			December 31, 2008
	(Dollars in thousands)
Non-accruing loans:
One-to-four family residential	$	560		$	445
Commercial and agricultural real estate		242			34
Multi-family residential		137			152
Commercial and agricultural business		781			48
Home equity/Home improvement		381			318
Automobile		13			3
Other consumer		-			5
Total	$	2,114		$	1,005
Accruing loans delinquent more than 90 days:
One-to-four family residential	$	238		$	163
Automobile		5			18
Other consumer		14			5
Total	$	257		$	186
Foreclosed assets:
One-to-four family residential	$	318		$	565
Commercial and agricultural real estate		203			204
Automobiles		-			9
Total	$	521		$	778
Total nonperforming assets	$	2,892		$	1,969
Total as a percentage of total assets		0.98	%		0.68	%

Interest income on other interest-earning assets, which consisted of interest-earning deposit accounts and federal funds sold, decreased $2,000 during the first quarter of 2010 primarily due to a decrease in the average yield. The average yield on other interest-earning assets decreased to 0.10% during the first quarter of 2010 from 0.19% during the first quarter of 2009. The average balance of these accounts increased $139,000 to $9.4 million for the three months ended March 31, 2010 compared to $9.2 million for the three months ended March 31, 2009.

~~The~~Interest Expense: Total ~~increase~~interest inexpense ~~commercial~~decreased ~~and~~$436,000, ~~agricultural~~or ~~business non-accruing loans is mostly due~~ 29.3%, to ~~the~~$1.1 ~~deterioration~~million offor ~~two commercial relationships during~~ the ~~second~~three ~~quarter~~months ofended ~~2009. The~~March ~~nonperforming~~31, ~~portion~~2010 ofcompared ~~these~~to ~~two credits contributed~~ $~~768,000~~1.5 million offor the ~~$923,000~~three ~~increase~~months inended ~~nonperforming~~March ~~assets~~31, ~~during the first nine months of~~ 2009. The ~~following~~ ~~table~~lower ~~shows~~interest expense ~~the~~was ~~aggregate~~due ~~principal~~to ~~amount~~a of$387,000 ~~potential~~decrease ~~problem~~in ~~credits on~~ the ~~Company’s~~cost ~~watch~~of ~~list~~deposits ~~at September 30, 2009~~ and ~~December~~a 31$49,000 decrease ~~2008. All~~in ~~non-accruing~~the ~~loans~~cost ~~are~~of ~~automatically~~borrowed ~~placed on the watch list~~funds.

Interest expense on deposits decreased $387,000 to $1.1 million for the three months ended March 31, 2010 compared to $1.4 million for the three months ended March 31, 2009. The decrease in interest expense on deposits was primarily due to a 72 basis point decrease in the average rate paid to 1.81% during the first quarter of 2010 from 2.53% during the first quarter of 2009. The decrease reflected low short-term market interest rates which continued during the first quarter of 2010. The decrease in the average rate paid was partially offset by a $5.7 million increase in the average balance of deposits to $233.2 million for the first quarter of 2010. The increase was primarily due to a $7.7 million increase in the average balance of transaction accounts.

Interest paid on borrowed funds decreased $49,000 to $2,200 for the first quarter of 2010 due to decreases in the average cost and in the average balance of borrowings. The average rate paid on borrowed funds decreased to 0.27% during the first quarter of 2010 compared to 1.52% during the first quarter of 2009, reflecting the decrease in market rates. The average balance of borrowed funds also decreased to $3.2 million during the first quarter of 2010 compared to $13.6 million during the same period of 2009. The decrease was primarily due to the repayment of all our FHLB advances which had an average balance in the first quarter of 2009 of $7.4 million. We had no FHLB advances during the first quarter of 2010.

	September 30, 2009		December 31, 2008
	(In thousands)
Special Mention credits	$	5,912	$	7,369
Substandard credits		5,778		2,388
Doubtful credits		3		-
Total watch list credits	$	11,693	$	9,757

Net Interest Income. As a result of the changes in interest income and interest expense noted above, net interest income decreased by $103,000, or 4.5%, to $2.2 million for the three months ended March 31, 2010 from $2.3 million for the three months ended March 31, 2009. Our interest rate spread decreased by two basis points to 3.13% during the first quarter of 2010 from 3.15% during the first quarter of 2009. Our net interest margin decreased nine basis points to 3.31% for the first quarter of 2010 from 3.40% for the first quarter of 2009. The decrease in our interest rate spread and net interest margin reflected the negative impact of accelerated premium amortization on our mortgage-backed securities resulting from higher national prepayment speeds.

~~While~~Provision ~~substandard~~for Loan ~~credits~~Losses: ~~have~~The ~~increased~~provision ~~$3.4~~for ~~million,~~loan ~~the~~losses ~~net~~is ~~increase~~determined inby ~~watch~~management ~~list~~as the ~~credits~~amount ~~equals~~needed ~~$1.9~~to ~~million~~replenish ~~during~~the ~~2009. The~~allowance ~~nonperforming~~for ~~commercial~~loan ~~credits of $768~~losses,~~000~~ ~~discussed~~after ~~above~~net charge-offs ~~and~~have ~~the~~been ~~$1.3 million of related debt~~deducted, ~~which~~to isa ~~performing,~~level ~~account~~considered ~~for~~adequate ~~$2.1~~to ~~million of the increase in substandard credits. The~~absorb ~~remainder~~inherent oflosses ~~the increase~~ in ~~substandard credits primarily reflects~~ the ~~downgrade~~loan ofportfolio, ~~two~~in ~~commercial~~accordance ~~lines~~with ~~from~~accounting ~~special~~principles generally ~~mention~~accepted toin ~~substandard~~the ~~during~~United ~~the~~States ~~second~~of ~~quarter~~America. The ~~net~~following table ~~increase~~shows inthe ~~watch~~activity ~~list~~in ~~credits also reflects~~ the ~~addition~~allowance offor ~~several~~loan ~~smaller~~losses ~~borrowers~~for ~~who~~the ~~are~~three ~~performing~~months ended asMarch ~~agreed~~31, ~~but~~2010 ~~have~~and ~~been added to the watch list by management for additional monitoring~~2009.

Other Income: Total other income for the three months ended September 30, 2009 increased $27,000 from the comparable period in 2008. The increase in other income is primarily attributable to increases of $56,000 in service charges on deposit accounts, $48,000 in net income from mortgage banking operations, and $43,000 in gains on sales of securities, partially offset by a decrease of $99,000 in commission income. The increase in gains on sales of securities reflects the sale of $11.0 million in securities during the third quarter, in order to realize the gains and restructure a portion of the portfolio into lower risk-weighted investments. The increase in mortgage banking income is due to a higher volume of loan sales to the secondary market and an increase in the net capitalization of mortgage servicing rights. The decrease in commission income is due to reduced brokerage activity, which reflects current market conditions.

	Three Months Ended
	March 31, 2010		March 31, 2009
	(In thousands)
Balance at beginning of period	$	2,290	$	1,934
Charge-offs:
One-to-four family residential		16		4
Home equity/home improvement		30		-
Other Consumer		-		5
Total		46		9
Recoveries:
One-to-four family residential		20		-
Commercial and agricultural real estate		3		1
Home equity/home improvement		10		1
Automobile		1		4
Other Consumer		2		1
Total		36		7
Net loan charge-offs		10		2
Additions charged to operations		275		350
Balance at end of period	$	2,555	$	2,282

Other Expenses: Total other expenses for the three months ended September 30, 2009 increased $64,000 from the same period in 2008. The increase in other expenses reflects an increase of $106,000 in FDIC deposit insurance premium assessments, partially offset by a decrease of $33,000 in occupancy expense. The increase in FDIC premiums reflects the higher assessment rates for 2009. Occupancy expense has benefited from reduced maintenance costs.

Income Taxes: The provision for income taxes equaled $149,000 during the three months ended September 30, 2009 and 2008. The income tax expense for the third quarter of 2009 reflects a higher level of income, partially offset by an increase in the benefit of tax-exempt investment income.

Comparison of Operating Results for the Nine Months Ended September 30, 2009 and 2008

General: The Company reported net income for the nine months ended September 30, 2009, of $966,000, or $0.50 per share, basic and diluted, compared to net income of $1,286,000, or $0.65 per share, basic and diluted, for the nine months ended September 30, 2008. Net income decreased $320,000 during the nine months ended September 30, 2009 compared to the same period of 2008, primarily due to increases of $2.0 million in the provision for loan losses and $199,000 in other expenses. The impact on net income from the provision for loan losses was partially offset by increases of $945,000 in net interest income and $582,000 in other income and a decrease of $336,000 in income taxes.

Interest Income: Total interest income decreased $929,000 during the nine months ended September 30, 2009, compared to the same period in 2008. The decrease in interest income was due to decreases of $209,000 from loans, $368,000 from investment securities, $134,000 from mortgage-backed securities, and $218,000 from other investments.

The provision ~~decrease~~for ofloan losses totaled $~~209~~275,000 induring ~~interest~~the ~~income~~first onquarter ~~loans~~of ~~was~~2010, compared ~~primarily due~~ to a$350,000 ~~decrease~~during in the ~~average~~first ~~yield~~quarter of 2009. The decrease in the ~~loan~~provision ~~portfolio,~~for ~~partially~~loan ~~offset~~losses byreflected anthe ~~increase~~decline in loan volume during the first ~~average~~quarter ~~balance. The~~of ~~average~~2010 ~~yield~~and a lower level of ~~the~~specific ~~loan~~allocations ~~portfolio~~to ~~decreased~~the 42allowance for ~~basis~~loan ~~points~~losses related to 6impaired loans.~~36%~~ ~~from~~The ~~6.78%~~allowance for ~~the~~loan ~~nine~~losses increased ~~months~~$273,000 ~~ended~~to ~~September~~$2.6 30million at March 31, ~~2009~~2010 ~~and~~from ~~2008~~$2.3 million at March 31, ~~respectively~~2009. ~~The average~~Loans ~~balance~~delinquent of30 ~~loans~~days ~~increased~~or more decreased $71.51 million during the first quarter of 2010 to $~~184~~2.37 million, ~~during~~or ~~the~~1.54% ~~first~~of ~~nine~~total ~~months~~loans as of March ~~2009. The~~31, ~~increase~~2010 infrom ~~the~~$3.8 ~~average~~million, ~~balance~~or 2.14% of total loans isas ~~primarily~~of ~~due~~December to31, 2009. anLoans ~~increase~~delinquent in30 ~~commercial~~days ~~real~~or ~~estate~~more ~~lending~~totaled $2.6 million, ~~including~~or ~~participations~~1.44% ~~purchased~~of ~~from~~total loans ~~other~~at ~~institutions~~March 31, 2009.

~~The~~Provisions for ~~$368,000~~loan ~~decrease~~losses inhave ~~interest~~been ~~income~~made onto ~~investment~~bring ~~securities reflects a decrease of $12.8 million in~~ the ~~average~~allowance ~~balance~~for ofloan ~~the~~losses ~~portfolio~~ to ~~$41.3~~a ~~million~~level deemed ~~during~~adequate ~~the~~following ~~first~~management’s ~~nine~~evaluation ~~months~~ of ~~2009,~~the asrepayment ~~compared~~capacity toand collateral ~~the~~protection ~~same~~afforded ~~period~~by ofeach ~~2008~~problem credit. ~~The~~This ~~decrease~~review also inconsidered the ~~average~~local ~~balance~~economy ~~reflects an increase in calls~~ and ~~sales,~~the alevel ~~portion~~ of ~~which~~ ~~have~~bankruptcies ~~been~~and ~~reinvested~~ foreclosures in ~~tax-free~~our ~~municipal~~market ~~bonds and mortgage-backed securities~~area. The ~~average~~following ~~yield~~table ofsets ~~investment~~forth ~~securities~~information regarding ~~increased~~nonperforming toassets ~~3.88%~~at ~~from 3.87% during~~ the ~~first~~dates ~~nine months of 2009 and 2008, respectively~~indicated. ~~This average yield does not reflect the benefit of the higher tax-equivalent yield of our municipal bonds, which is reflected as a reduction in income tax expense.~~

The $134,000 decrease in interest income on mortgage-backed securities was mostly due to a decrease in the average yield of these securities. The average yield decreased 198 basis points to 3.58% during the first nine months of 2009, compared to the same period of 2008. The decrease in the average yield is primarily due to accelerated premium amortization resulting from higher prepayments on mortgage-backed securities. The decrease in the average yield was partially offset by an increase of $10.6 million in the average balance of mortgage-backed securities to $38.6 million during 2009.

	March 31, 2010			December 31, 2009
	(Dollars in thousands)
Non-accruing loans:
One-to-four family residential	$	707		$	484
Commercial and agricultural real estate		630			98
Multi-family residential		128			132
Commercial and agricultural business		301			416
Home equity/Home improvement		447			407
Automobile		8			8
Other consumer		19			52
Total	$	2,240		$	1,597

Accruing loans delinquent more than 90 days:
One-to-four family residential	$	63		$	349
Automobile		-			3
Other consumer		7			5
Total	$	70		$	357

Foreclosed assets:
One-to-four family residential	$	377		$	324
Commercial and agricultural real estate		252			59
Automobiles		-			-
Total	$	629		$	383

Total nonperforming assets	$	2,939		$	2,337

Total as a percentage of total assets		1.02	%		0.81	%

Interest income on other interest-earning assets, which consist of interest-earning deposit accounts and federal funds sold, decreased $218,000 during the first nine months of 2009 primarily due to a 234 basis point decrease in the average yield. The average yield of these other interest-earning assets decreased to 0.16% from 2.50% during the first nine months of 2009 and 2008, respectively, reflecting the decrease in short-term market rates of interest. The average balance of these accounts decreased $3.9 million to $8.3 million for the nine months ended September 30, 2009 compared to the same period of 2008.

Interest Expense: Total interest expense decreased $1.9 million for the nine months ended September 30, 2009 compared to the same period in 2008. The decrease in interest expense was due to decreases of $1.5 million in the cost of deposits and $351,000 in the cost of borrowed funds.

The $1.5 million decrease in the cost of deposits was primarily due to a decrease in the average rate paid. The average rate paid decreased to 2.35% during the nine months ended September 30, 2009 from 3.25% during the nine months ended September 30, 2008. The 90 basis point decrease reflects the decrease in short-term market rates of interest. The average balance of deposits increased $2.2 million during this same time frame to $233.9 million.

Interest expense on borrowed funds decreased $351,000 primarily due to a 247 basis point decrease in the average rate paid on borrowed funds. The average rate paid decreased to 1.14% from 3.61% during the first nine months of 2009 and 2008, respectively, reflecting the decrease in market rates of interest. The average balance also decreased $5.1 million to $11.4 million during the first nine months of 2009, primarily due to a $5.0 million decrease in the average balance of advances from the Federal Home Loan Bank. The remainder of the balance consists of securities sold under agreements to repurchase.

Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb probable losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America.

Nonperforming assets increased $602,000 to $2.9 million, or 1.02% of total assets, as of March 31, 2010, compared to $2.3 million, or 0.81% of total assets, as of December 31, 2009. The ~~following~~increase ~~table~~in ~~shows~~nonperforming ~~the~~assets ~~activity~~was due to a $356,000 increase in nonperforming loans and a $246,000 increase in real estate owned. Within nonperforming assets, nonperforming loans increased to $2.3 million as of March 31, 2010, from $2.0 million at December 31, 2009. The increase in nonperforming loans primarily reflected the non-accruing ~~allowance~~status ~~for~~of one commercial real estate loan ~~losses~~totaling $493,000. This ~~for~~loan is secured by a mortgage on a new hotel and management believes the ~~nine~~loan ~~months~~has ~~ended~~been ~~September~~adequately 30reserved. The increase in real estate owned reflected the addition of two properties totaling $311,000 ~~2009~~during the first quarter of 2010. Both of these properties are under contract for sale and ~~2008~~no additional losses are expected.

	9 Months Ended
	September 30, 2009		September 30, 2008
	(In thousands)
Balance at beginning of period	$	1,934	$	1,766
Charge-offs:
One-to-four family residential		45		56
Commercial and agricultural real estate		74		-
Commercial and agricultural business		1,203		-
Home equity/home improvement		45		-
Automobile		15		5
Other Consumer		5		3
Total		1,387		64
Recoveries:
One-to-four family residential		1		1
Commercial and agricultural real estate		3		3
Home equity/home improvement		3		3
Automobile		5		5
Other Consumer		7		9
Total		19		21
Net loan charge-offs		1,368		43
Additions charged to operations		2,150		165
Balance at end of period	$	2,716	$	1,888

The following table shows the aggregate principal amount of potential problem credits on the Company’s watch list at March 31, 2010 and December 31, 2009. All non-accruing loans are automatically placed on the watch list. The decrease in Special Mention credits and subsequent increase in Substandard credits reflect the downgrade of six commercial borrowers totaling $2.6 million. With the exception of the non-accruing loan noted above, the remaining five borrowers are current and performing as agreed.

The allowance for loan losses increased $782,000 to $2.7 million at September 30, 2009 from $1.9 million at December 31, 2008. The increase is the result of the provision for loan losses exceeding net charge-offs. The provision for loan losses increased to $2.2 million during the nine months ended September 30, 2009 from $165,000 during the first nine months of 2008. Net charge-offs increased to $1.4 million during the first nine months of 2009. The provision for loan losses has been impacted by the deterioration of two commercial relationships. Losses totaling $1.2 million were recognized during the second quarter and additional reserves of approximately $800,000 have been added to the allowance for loan losses to absorb potential estimated losses related to these two credits. The remainder of the increase in the provision for loan losses reflects an increase in the average balance of the loan portfolio and an increase in watch list credits.

	March 31, 2010		December 31, 2009
	(In thousands)
Special Mention credits	$	3,709	$	6,489
Substandard credits		7,563		4,865
Total watch list credits	$	11,272	$	11,354

~~Other~~ Non-Interest Income: ~~Total~~Non-interest ~~other~~ income increased $46,000, or 5.0%, to $951,000 for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 ~~increased~~from $~~582~~905,000 ~~from~~for the ~~comparable~~ same period in ~~2008~~2009. The increase in ~~other~~non-interest income is resulted primarily ~~attributed~~from to increases of $~~498~~124,000 in ~~net~~commission income, ~~from~~$82,000 ~~mortgage~~in ~~banking~~service ~~operations~~charges on deposits, and $~~436~~80,000 in gains on ~~sales~~the sale of available-for-sale securities, partially offset by a decrease of $~~362~~233,000 in ~~commission~~ income from mortgage banking operations. The increase in ~~gains~~commission onincome ~~sales~~reflected improved ofmarket ~~securities~~conditions ~~reflects~~and ~~the~~growth ~~sale~~in ofcustomer ~~$40~~accounts.0 Service charges ~~million~~on deposits benefitted from the increase in ~~securities~~insufficient ~~during~~fund fees related to the ~~first~~overdraft ~~nine~~privilege ~~months~~program implemented during the second quarter of 2009,. The ingains ~~order~~on tothe ~~realize~~sale of securities reflected a higher volume of sales during the ~~gains~~first ~~and~~quarter ~~restructure~~of 2010 as we changed the composition of a portion of the securities portfolio ~~into~~to ~~lower~~include ~~risk~~a greater percentage of variable-~~weighted~~rate ~~investments~~mortgage-backed securities and shorter term U.S. Agency securities. The ~~increase~~decrease in mortgage banking income iswas due to a lower ~~higher~~ volume of loan sales toin ~~the~~2010, ~~secondary~~as ~~market~~we ~~totaling~~sold $~~58.~~4.9 million ~~during 2009~~of ~~and~~loans anto ~~increase~~the secondary inmarket during the ~~net~~first ~~capitalization~~quarter of ~~mortgage~~2010, ~~servicing~~compared ~~rights~~to $32.6 million during the same period of 2009. The decrease in ~~commission~~loan ~~income~~sales isin ~~due~~2010 reflected tohigher ~~reduced~~loan ~~brokerage~~originations ~~activity,~~for ~~which~~sale ~~reflects~~in ~~current~~2009 ~~market~~as ~~conditions~~the decline in mortgage interest rates in 2009 resulted in a higher level of mortgage originations during the first quarter of 2009.

Non-Interest Expense: Total non-interest expense increased $32,000 to $2.25 million for the three months ended March 31, 2010 from $2.22 million for the same period of 2009. The increase in non-interest expense consisted mainly of increases of $37,000 in compensation and benefits expense and $25,000 in data processing expense, partially offset by a $12,000 decrease in occupancy and equipment expense. The increase in compensation and benefits expense resulted from normal salary and benefits increases. Data processing expense increased due to a higher cost of software maintenance agreements. Occupancy expense decreased due to lower depreciation expense during the first quarter of 2010, compared to the first quarter of 2009.

~~Other Expense~~Income Taxes: ~~Total~~ The ~~other~~provision ~~expense~~ for ~~the~~income ~~nine~~taxes ~~months~~decreased ~~ended September 30~~$12,000 ~~2009 increased~~ to $~~199~~109,000 ~~from~~during the ~~same~~first ~~period~~quarter of ~~2008. The~~2010 ~~increase~~compared into ~~other~~the ~~expense~~same ~~reflects~~period ~~an increase~~ of ~~$425,000~~ in2009. The ~~FDIC~~decrease ~~deposit insurance premium assessments, partially offset by a $91,000 recovery~~ in the ~~impairment~~income oftax ~~mortgage~~provision ~~servicing~~reflected ~~rights and~~ a decrease ~~of $86,000~~ in ~~data~~taxable ~~processing~~income ~~expense. The~~due ~~increase~~to inlower ~~FDIC~~income ~~premiums reflects the higher assessment rates for 2009~~ and ~~approximately~~an ~~$137,000~~increase ~~related~~in to the ~~second~~benefit ~~quarter~~of tax-exempt ~~FDIC special assessment~~income. The ~~decrease~~effective intax ~~data~~rate ~~processing~~was ~~expense~~17.9% ~~reflects~~and ~~the~~19.5% ~~cost~~for ~~savings~~the first ~~realized~~quarters ~~in a conversion~~ of ~~our~~2010 ~~core~~and ~~processing~~2009, ~~system during the third quarter of 2008~~respectively.

Income Taxes: The provision for income taxes decreased $336,000 during the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The decrease in income tax expense reflects a decrease in taxable incomeLiquidity ~~due to lower income~~ and anCapital ~~increase in the benefit of tax-exempt investment income.~~Resources

~~Liquidity and Capital Resources:~~ The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, and investing activities. At ~~September~~March 3031, ~~2009~~ 2010 and December 31, ~~2008~~2009, cash and cash equivalents ~~totalled~~totaled $714.38 million and $715.17 million, respectively. The Company’s primary sources of funds include principal and interest repayments on loans (both scheduled ~~repayments~~payments and prepayments), maturities ~~and calls~~ of investment securities and principal repayments from mortgage-backed securities (both scheduled ~~repayments~~payments and prepayments). During the past ~~twelve~~three months, the most significant sources of funds have been growth in deposits, ~~investment~~ calls, ~~sales,~~ and ~~principal~~sales ~~payments~~of investment securities, and ~~loan~~principal ~~sales~~repayments toon ~~the~~loans ~~secondary~~and ~~market~~mortgage-backed securities. These funds have been used primarily for ~~new~~purchases ~~loan~~of U.S. ~~originations~~Agency and ~~investment~~mortgage-backed ~~purchases~~securities.

While scheduled loan repayments and proceeds from maturing investment securities and principal repayments on mortgage-backed securities are relatively predictable, deposit flows and ~~early~~ prepayments are more influenced by interest rates, general economic conditions, and competition. The Company attempts to price its deposits to meet asset-liability objectives and stay competitive with local market conditions.

Liquidity management is both a short-~~term~~ and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected purchases of investment and mortgage-backed securities, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits, and (v) liquidity of its asset-/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits and other short-term U.S. ~~Agency~~ agency obligations. If the Company requires funds beyond its ability to generate them internally, it has the ability to borrow funds from the FHLB. The Company may borrow from the FHLB under a blanket agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 150% of the outstanding balance as collateral to secure the amounts borrowed. This borrowing arrangement is limited to a maximum of 30% of the Company’s total assets or twenty times the balance of FHLB stock held by the Company. At ~~September~~March 3031, ~~2009~~2010, the Company had no outstanding FHLB advances ofand ~~$5.0 million. In addition, the Company had~~ approximately $1722.2 million remaining available to it under ~~its~~the ~~FHLB~~above-mentioned borrowing arrangement.

The Company maintains minimum levels of liquid assets as established by the Board of Directors. The Company’s liquidity ratios at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009 were 2833.03% and 2430.17%, respectively. ~~These~~This ~~ratios~~ratio represents ~~represent~~ the volume of short-term liquid assets as a percentage of net deposits and borrowings due within one year.

The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009.

	March 31, 2010		December 31, 2009
	(In thousands)
Commitments to fund loans	$	39,161	$	36,946
Standby letters of credit		493		488

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to average assets (as defined). Management believes that at March 31, 2010, the Company met all its capital adequacy requirements.

	September 30, 2009		December 31, 2008
	(In thousands)
Commitments to fund loans	$	40,286	$	50,723
Standby letters of credit		453		774

Under Illinois law, Illinois-chartered savings banks are required to maintain a minimum core capital to total assets ratio of 3%. The Illinois Commissioner of Savings and Residential Finance (the “Commissioner”) is authorized to require a savings bank to maintain a higher minimum capital level if the Commissioner determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s core capital ratio falls below the required level, the Commissioner may direct the savings bank to adhere to a specific written plan established by the Commissioner to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends by the savings bank’s board of directors. At March 31, 2010, the Bank’s core capital ratio was 7.79% of total average assets, which substantially exceeded the required amount.

~~Quantitative~~The ~~measures~~Bank is ~~established~~also byrequired ~~regulation~~ to ~~ensure~~maintain regulatory capital ~~adequacy~~requirements ~~require~~imposed by the Federal ~~Company~~Deposit ~~and~~Insurance ~~the~~Corporation. The Bank tomust have: (i) ~~maintain~~Tier ~~minimum~~1 ~~amounts~~Capital ~~and~~to ~~ratios~~Average ~~(set~~Assets ~~forth~~of in4.0%, ~~the table below~~(ii) ~~of total and~~ Tier 1 Capital ~~capital (as defined in the regulations)~~ to ~~risk~~Risk-~~weighted~~Weighted ~~assets~~Assets ~~(as~~of ~~defined)~~4.0%, and ~~Tier 1 capital~~ (~~as defined~~iii) toTotal ~~average~~Capital ~~assets~~to Risk-Weighted ~~(as~~Assets ~~defined)~~of 8.0%. ~~Management believes,~~At atMarch ~~September 30~~31, ~~2009~~2010, ~~that~~minimum requirements and the Bank's ~~meets~~actual ~~all~~ratios ~~its~~are ~~capital~~as ~~adequacy requirements.~~follows:

Under Illinois law, Illinois-chartered savings banks are required to maintain a minimum core capital to total assets ratio of 3%. The Director of the Illinois Department of Financial and Professional Regulation, Division of Banking (the “Director”) is authorized to require a savings bank to maintain a higher minimum capital level if the Director determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s core capital ratio falls below the required level, the Director may direct the savings bank to adhere to a specific written plan established by the Director to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends by the savings bank’s board of directors. At September 30, 2009, the Bank’s core capital ratio was 7.26% of total average assets, which exceeded the required amount.

	March 31, 2010			December 31, 2009			Minimum
	Actual			Actual			Required
Tier 1 Capital to Average Assets		7.79	%		7.44	%		4.00	%
Tier 1 Capital to Risk-Weighted Assets		10.98	%		10.70	%		4.00	%
Total Capital to Risk-Weighted Assets		12.23	%		11.83	%		8.00	%

The Bank is also required to maintain regulatory capital requirements imposed by the Federal Deposit Insurance Corporation. The Bank’s actual ratios at September 30, 2009 and the required minimums to be considered adequately capitalized are shown in the table below. In order to be considered well-capitalized,Effect ~~the Bank must maintain: (i) Tier 1 Capital to Average Assets~~ of ~~5.0%,~~Inflation ~~(ii) Tier 1 Capital to Risk-Weighted Assets of 6.0%,~~ and ~~(iii)~~Changing ~~Total Capital to Risk-Weighted Assets of 10.0%.~~Prices

	September 30, 2009			December 31, 2008			Minimum
	Actual			Actual			Required
Tier 1 Capital to Average Assets		7.26	%		7.30	%		4.00	%
Tier 1 Capital to Risk-Weighted Assets		10.33	%		10.02	%		4.00	%
Total Capital to Risk-Weighted Assets		11.58	%		10.94	%		8.00	%

The consolidated financial statements and related financial data presented herein have been prepared in accordance with GAAP which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Future capital levels may benefit if the Company’s parent company, Jacksonville Bancorp, MHC, continues to waive its right to receive dividends. The mutual holding company has received approval from its primary regulator, the Office of Thrift Supervision, for such waivers through the quarter ended September 30, 2009. A request for non-objection has been filed with the OTS to permit the MHC to waive its receipt of dividends through the quarter ended September 30, 2010.

Effect of Inflation and Changing Prices: The consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in relative purchasing power of money over time due to inflation. The impact of inflation is reflected in increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.

Consolidated Average Balance Sheet and Interest Rates
(Dollars in thousands)
	Three Months Ended September 30,
	Three Months Ended March 31,
	2009							2008
	2010							2009
	Average							Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earnings assets:
Loans	$	~~183~~174,~~614~~874	$	2,~~904~~671		6.3311	%	$	~~177~~184,~~990~~516	$	2,~~974~~978		6.6846	%
Investment securities		3640,~~869~~286		~~356~~400		3.8697	%		5546,~~319~~590		~~533~~462		3.8697	%
Mortgage-backed securities		4738,~~973~~853		~~387~~161		31.2266	%		3527,~~895~~912		~~449~~329		54.0072	%
Other		49,~~617~~357		2		0.1410	%		39,~~221~~218		165		20.0119	%
Total interest-earning assets		~~273~~263,~~073~~370		3,~~649~~234		54.3591	%		~~272~~268,~~425~~236		3,~~972~~774		5.8363	%
Non-interest earnings assets		2122,~~511~~435							2024,~~890~~901
Total assets	$	~~294~~285,~~584~~805						$	293,~~315~~137
Interest-bearing liabilities:
Deposits	$	~~236~~233,~~951~~160	$	1,~~291~~053		21.1881	%	$	~~226~~227,~~475~~481	$	1,~~707~~439		32.0153	%
Other borrowings		93,~~830~~185		232		0.9327	%		1813,~~814~~580		~~150~~52		31.1952	%
Total interest-bearing liabilities		~~246~~236,~~781~~345		1,~~314~~055		21.1378	%		~~245~~241,~~289~~061		1,~~857~~491		32.0348	%
Non-interest bearing liabilities		2324,~~144~~037							2527,~~544~~817
Stockholders' equity		2425,~~659~~423							2224,~~482~~259
Total liabilities/stockholders' equity	$	~~294~~285,~~584~~805						$	293,~~315~~137
Net interest income			$	2,~~335~~179						$	2,~~115~~283
Interest rate spread (average yield earned
minus average rate paid)						3.2213	%						23.8015	%
Net interest margin (net interest income
divided by average interest-earning assets)						3.4231	%						3.1140	%

Analysis of Volume and Rate Changes
(In thousands)
Three Months Ended September 30,
	2009 Compared to 2008
	Increase(Decrease) Due to
	Rate			Volume			Net
Interest-earnings assets:
Loans	$	(161	)	$	92		$	(69	)
Investment securities		1			(178	)		(177	)
Mortgage-backed securities		(187	)		125			(62	)
Other		(20	)		5			(15	)
Total net change in income on
interest-earning assets		(367	)		44			(323	)
Interest-bearing liabilities:
Deposits		(492	)		76			(416	)
Other borrowings		(76	)		(51	)		(127	)
Total net change in expense on
interest-bearing liabilities		(568	)		25			(543	)
Net change in net interest income	$	201		$	19		$	220

The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.

Consolidated Average Balance Sheet and Interest Rates
(Dollars in thousands)
	Nine Months Ended September 30,
	2009							2008
	Average							Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earnings assets:
Loans	$	184,310	$	8,786		6.36	%	$	176,823	$	8,995		6.78	%
Investment securities		41,303		1,201		3.88	%		54,105		1,569		3.87	%
Mortgage-backed securities		38,619		1,036		3.58	%		28,042		1,170		5.56	%
Other		8,274		10		0.16	%		12,139		228		2.50	%
Total interest-earning assets		272,506		11,033		5.40	%		271,109		11,962		5.88	%
Non-interest earnings assets		22,872							23,636
Total assets	$	295,378						$	294,745
Interest-bearing liabilities:
Deposits	$	233,896	$	4,129		2.35	%	$	231,718	$	5,652		3.25	%
Other borrowings		11,420		98		1.14	%		16,561		449		3.61	%
Total interest-bearing liabilities		245,316		4,227		2.30	%		248,279		6,101		3.28	%
Non-interest bearing liabilities		25,603							23,754
Stockholders' equity		24,459							22,712
Total liabilities/stockholders' equity	$	295,378						$	294,745
Net interest income			$	6,806						$	5,861
Interest rate spread (average yield earned
minus average rate paid)						3.10	%						2.61	%
Net interest margin (net interest income
divided by average interest-earning assets)						3.33	%						2.88	%

The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities.

Analysis of Volume and Rate Changes

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

2009 Compared to 2008

2010 Compared to 2009

Increase(Decrease) Due to

Rate

Volume

Net

Interest-earnings assets:

Loans

(~~580~~155

)

~~371~~(152

)

(~~209~~307

)

Investment securities

(~~372~~62

)

(~~368~~62

)

Mortgage-backed securities

(~~494~~266

)

~~360~~98

(~~134~~168

)

Other

(~~163~~2

)

~~(55~~-

)

(~~218~~2

)

Total net change in income on

interest-earning assets

(~~1,233~~423

)

~~304~~(116

)

(~~929~~539

)

Interest-bearing liabilities:

Deposits

(~~1,575~~422

)

5235

(~~1,523~~387

)

Other borrowings

(~~241~~25

)

(~~110~~24

)

(~~351~~49

)

Total net change in expense on

interest-bearing liabilities

(~~1,816~~447

)

~~(58~~11

)

(~~1,874~~436

)

Net change in net interest income

~~583~~24

~~362~~(127

)

~~945~~(103

)

3230

JACKSONVILLE BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s policy in recent years has been to reduce its interest rate risk by better matching the maturities of its interest rate sensitive assets and liabilities, selling its long-term fixed-rate residential mortgage loans with terms of 15 years or more to the secondary market, originating adjustable rate loans, balloon loans with terms ranging from three to five years and originating consumer and commercial business loans, which typically are for a shorter duration and at higher rates of interest than one-to-four family loans. ~~The~~Our ~~Company also maintains a~~ portfolio of mortgage-backed securities, ~~which~~including both fixed and variable rates, also provides monthly cash flow. The remaining investment portfolio has been ~~laddered~~structured to better match the maturities and rates of its interest-bearing liabilities. During the first quarter of 2010, the Company increased its holdings of variable-rate mortgage-backed securities and shorter term U.S. Agency securities in order to help protect the balance sheet from a potential rising rate environment. With respect to liabilities, the Company has attempted to increase its savings and transaction deposit accounts, which management believes are more resistant to changes in interest rates than certificate accounts. The Board of Directors appoints the Asset-Liability Management Committee (ALCO), which is responsible for reviewing the Company’s asset and liability policies. The ALCO meets quarterly to review interest rate risk and trends, as well as liquidity and capital ratio requirements.

The Company uses a comprehensive asset/liability software package provided by a third-party vendor to perform interest rate sensitivity analysis for all product categories. The primary focus of the Company’s analysis is on the effect of interest rate increases and decreases on net interest income. Management believes that this analysis reflects the potential effects on current earnings of interest rate changes. Call criteria and prepayment assumptions are taken into consideration for investment securities and loans. All of the Company’s interest sensitive assets and liabilities are analyzed by product type and repriced based upon current offering rates. The software performs interest rate sensitivity analysis by performing rate shocks of plus or minus 300 basis points in 100 basis point increments.

The following table shows projected results at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~ 2009 of the impact on net interest income from an immediate change in interest rates, as well as the benchmarks established by the ALCO. The results are shown as a dollar and percentage change in net interest income over the next twelve months.

	Change in Net Interest Income
	(Dollars in thousands)
	September 30, 2009						December 31, 2008						ALCO
	March 31, 2010						December 31, 2009						ALCO
Rate Shock:	$ Change			% Change			$ Change			% Change			Benchmark
+ 200 basis points		~~252~~228			2.3820	%		~~(68~~220	)		-02.6916	%	> (20.00)%	~~> (20.00)~~	%
+ 100 basis points		~~246~~233			2.3325	%		33184			01.3480	%	> (12.50)%	~~> (12.50)~~	%
- 100 basis points		(~~317~~30	)		-30.0029	%		95(271	)		0-2.9766	%	> (12.50)%	~~> (12.50)~~	%
- 200 basis points		(~~480~~181	)		-41.5475	%		(12412	)		-04.1205	%	> (20.00)%	~~> (20.00)~~	%

The foregoing computations are based upon numerous assumptions, including relative levels of market interest rates, prepayments, and deposit mix. The computed estimates should not be relied upon as a projection of actual results. Despite the limitations on precision inherent in these computations, management believes that the information provided is reasonably indicative of the effect of changes in interest rate levels on the net earning capacity of the Company’s current mix of interest earning assets and interest bearing liabilities. Management continues to use the results of these computations, along with the results of its computer model projections, in order to maximize current earnings while positioning the Company to minimize the effect of a prolonged shift in interest rates that would adversely affect future results of operations.

At the present time, the most significant market risk affecting the Company is interest rate risk. Other market risks such as foreign currency exchange risk and commodity price risk do not occur in the normal business of the Company. The Company also is not currently using trading activities or derivative instruments to control interest rate risk.

3332

JACKSONVILLE BANCORP, INC.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Company’s ~~Chief~~principal ~~Executive~~executive ~~Officer~~officer and principal ~~Chief~~financial ~~Financial~~officer, ~~Officer~~ have ~~concluded~~evaluated the effectiveness of the Company’s “disclosure controls and procedures,” ~~based~~as onsuch ~~their~~term ~~evaluation~~is ~~within~~defined 90in ~~days~~Rule ~~prior~~13a-15(e) promulgated tounder ~~filing~~the ~~date~~Securities ofExchange ~~this~~Act ~~report~~of 1934, ~~that~~as amended (the ~~Company’s~~“Exchange Act”). Based ~~disclosure~~upon ~~controls~~their evaluation, the principal executive officer and principal ~~procedures~~financial (officer concluded that, as ~~defined~~of bythe end of the ~~Securities~~period ~~Exchange~~covered by ~~Act~~this ~~Rules~~report, ~~13a-15(e)~~the Company’s disclosure controls and ~~15d-15(e))~~procedures ~~are~~were effective for tothe ~~ensure~~purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange ~~Act~~Commission of(the ~~1934~~“SEC”) (1) is recorded, processed, summarized and reported, within the time periods specified in the ~~Securities~~SEC’s rules and forms ~~Exchange~~and ~~Commission~~(2) is accumulated and communicated to the Company’s ~~rules~~management, including its principal executive and ~~forms~~principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have ~~were~~been no ~~significant~~ changes ~~made~~ in ~~our~~the Company’s internal ~~controls~~control ~~during~~over financial reporting identified in connection with the ~~period~~evaluation ~~covered~~required by ~~this~~Rule ~~report~~13(a)-15(e) ~~or,~~that occurred toduring ~~our~~the ~~knowledge,~~Company’s inlast ~~other~~fiscal ~~factors~~quarter that ~~could~~has ~~significantly~~materially ~~affect~~affected, or ~~these~~is ~~controls~~reasonably ~~subsequent~~likely to materially affect, the ~~date~~Company’s ofinternal ~~the~~control over ~~foregoing~~financial ~~evaluation~~reporting.

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings

	None.

Item 1.A.	Risk Factors

	There have been no material changes in the Company’s risk factors from those disclosed in its annual report on Form 10-K.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

	None.

Item 3.	Defaults Upon Senior Securities

	None.

Item 4.	Removed and Reserved

Item 5.	Other Information

	None.

Item 6.	Exhibits

	31.1 -	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
	31.2 -	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
	32.1 -	Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings
	None.
Item 1.A.	Risk Factors
	There have been no material changes in the Company’s risk factors from those disclosed in its annual report on Form 10-K.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	The following table sets forth the issuer purchases of equity securities during the prior three months.

	Total number of shares purchased		Average price paid per share		Total number of shares purchased under publicly announced plan		Maximum number of shares that may be purchased under the previously announced repurchase plan
July 1 – July 31		-	$	-		-		32,308
August 1 – August 31		-		-		-		32,308
September 1 – September 30		-		-		-		32,308

Item 3.	Defaults Upon Senior Securities
	None.
Item 4.	Submission of Matters to a Vote of Security Holders
	None.
Item 5.	Other Information
	None.
Item 6.	Exhibits
	31.1 -	Certification of the Chief Executive Officer Pursuant to Rule 13a-15(e)/15d-15(e)
	31.2 -	Certification of the Chief Financial Officer Pursuant to Rule 13a-15(e)/15d-15(e)
	32.1 -	Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	JACKSONVILLE BANCORP, INC.
	Registrant
Date: 11/05/2009	/s/ Richard A. Foss
Date: 05/17/2010	/s/ Richard A. Foss
	Richard A. Foss
	President and Chief Executive Officer
	/s/ Diana S. Tone
	Diana S. Tone
	Chief Financial Officer

3735

Filing Compare · JACKSONVILLE BANCORP INC